REFERENCE: Ref.14_01
Cleary,Wasser,and Nolan formed a partnership on January 1,2007,with investments of $100,000,$150,000,and $200,000,respectively.For division of income,they agreed to (1)interest of 10% of the beginning capital balance each year, (2)annual compensation of $10,000 to Wasser,and (3)sharing the remainder of the income or loss in a ratio of 20% for Cleary,and 40% each for Wasser and Nolan.Net income was $150,000 in 2007 and $180,000 in 2008.Each partner withdrew $1,000 for personal use every month during 2007 and 2008.
-What was Nolan's share of income for 2008?

Question

Quizplus · Accepted Answer

First, we need to calculate the total interest on the beginning capital balance for each partner, which is 10% of their investment:

- Cleary: 10% of $100,000 = $10,000
- Wasser: 10% of $150,000 = $15,000
- Nolan: 10% of $200,000 = $20,000

Next, we need to deduct Wasser's annual compensation of $10,000 from the net income for each year:

- Net income for 2007 after Wasser's compensation: $150,000 - $10,000 = $140,000
- Net income for 2008 after Wasser's compensation: $180,000 - $10,000 = $170,000

Then, we need to calculate the remaining income after deducting interest and Wasser's compensation, and divide it according to the agreed-upon sharing ratio:

- Remaining income for 2007: $140,000 - ($10,000 + $10,000 + $14,000) = $106,000
    - Cleary's share: 20% of $106,000 = $21,200
    - Wasser's share: 40% of $106,000 = $42,400
    - Nolan's share: 40% of $106,000 = $42,400
- Remaining income for 2008: $170,000 - ($10,000 + $10,000 + $14,000) = $136,000
    - Cleary's share: 20% of $136,000 = $27,200
    - Wasser's share: 40% of $136,000 = $54,400
    - Nolan's share: 40% of $136,000 = $54,400

Finally, we need to add up Nolan's share of income for both years and subtract his personal withdrawals:

- $42,400 (Nolan's share of income for 2007) - ($1,000 x 12) = $30,400
- $54,400 (Nolan's share of income for 2008) - ($1,000 x 12) = $42,400
- Total: $30,400 + $42,400 = $72,800

Therefore, Nolan's share of income for 2008 was $54,400, and after subtracting his personal withdrawals, his total share of income for both years was $72,800. The answer is choice D.

REFERENCE: Ref.14_01 Cleary,Wasser,and Nolan Formed a Partnership on January 1,2007,with Investments of Investments