Fellows and Marshall are partners in an accounting firm and share net income and loss equally.Fellows' beginning partnership capital balance for the current year is $185,000,and Marshall's beginning partnership capital balance for the current year is $260,000.The partnership had net income of $350,000 for the year.Fellows withdrew $80,000 during the year and Marshall withdrew $70,000.What is Marshall's return on equity?
A)67.3%
B)60.3%
C)78.7%
D)54.3%
E)56.0%

Question

Quizplus · Accepted Answer

Marshall's return on equity is calculated as (Net Income - Withdrawals) / Average Capital Balance. Marshall's share of net income is $175,000 (half of $350,000). His ending capital balance is $365,000 ($260,000 + $175,000 - $70,000). The average capital balance is ($260,000 + $365,000) / 2 = $312,500. Return on equity is ($175,000 - $70,000) / $312,500 = 56.0%.

Fellows and Marshall Are Partners in an Accounting Firm and Share