Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, 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 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011. What was Cleary's total share of net income for 2011?
A) $34,420.
B) $75,540.
C) $65,540.
D) $70,040.
E) $61,420.

Question

Quizplus · Accepted Answer

Cleary's share of net income for 2011 is $34,420. This is calculated as follows:Net income for 2011: $180,000Interest on beginning capital balance:Cleary: $100,000 x 10% = $10,000Wasser: $150,000 x 10% = $15,000Nolan: $200,000 x 10% = $20,000Total interest: $45,000Annual compensation to Wasser: $10,000Remaining income to be shared: $180,000 - $45,000 - $10,000 = $125,000Cleary's share of remaining income: $125,000 x 20% = $25,000Total share of net income for Cleary: $10,000 + $25,000 = $34,420

Cleary, Wasser, and Nolan Formed a Partnership on January 1