Jackson and O'Neill open a partnership that produces gates.Jackson provides $30,000 of capital while O'Neill contributes $90,000 of capital;they agree to split net income by the same proportion.The partnership's net income is $80,000 for the first year.They did not draw any income out of the business or add any additional capital during the first year.At the end of the year,the partners' equity is:
A)$70,000 for Jackson and $130,000 for O'Neill for a total of $200,000.
B)$200,000 minus income tax expense for the partnership.
C)$200,000 minus the income tax paid by each partner.
D)$50,000 for Jackson and $150,000 for O'Neill for a total of $200,000.

Question

Quizplus · Accepted Answer

Since Jackson and O'Neill agreed to split net income by the same proportion, we need to calculate the ratio of their investments. The ratio is 30,000:90,000 which simplifies to 1:3. Therefore, Jackson gets 1/4 of the net income and O'Neill gets 3/4 of the net income. 
Jackson's share = 1/4 x $80,000 = $20,000 
O'Neill's share = 3/4 x $80,000 = $60,000 
Adding their shares to their initial capital gives: 
Jackson's equity = $30,000 + $20,000 = $50,000 
O'Neill's equity = $90,000 + $60,000 = $150,000 
Total equity = $50,000 + $150,000 = $200,000

Jackson and O'Neill Open a Partnership That Produces Gates