The net income of the Rice and Nance partnership is $180,000. The partnership agreement specifies that Rice and Nance have a salary allowance of $48,000 and $72,000, respectively. The partnership agreement also specifies an interest allowance of 10% on capital balances at the beginning of the year. Each partner had a beginning capital balance of $120,000. Any remaining net income or net loss is shared equally.
What is the balance of Nance's Capital account at the end of the year after net income has been distributed?

Question

Quizplus · Accepted Answer

1. Calculate the interest allowance: 
- Beginning capital balance for each partner = $120,000 
- Interest allowance = 10% x $120,000 = $12,000 for each partner 
2. Calculate the salary and interest allocation for each partner:

| Partner | Salary Allowance | Interest Allowance | Total Allocation | Remaining Income |
|---------|----------------|-------------------|------------------|------------------|
| Rice    | $48,000        | $12,000           | $60,000          | $120,000         |
| Nance   | $72,000        | $12,000           | $84,000          | $96,000          |

3. Allocate the remaining income equally between the partners: 
- Remaining income = $180,000 - $144,000 = $36,000 
- Each partner gets $18,000 
4. Calculate the ending capital balance for each partner:

| Partner | Beginning Balance | Total Allocation | Remaining Income | Ending Balance   |
|---------|------------------|------------------|------------------|------------------|
| Rice    | $120,000         | $60,000          | $18,000          | $198,000         |
| Nance   | $120,000         | $84,000          | $18,000          | $222,000         |

Therefore, the balance of Nance's Capital account at the end of the year after net income has been distributed is $222,000. The correct answer is C).

The Net Income of the Rice and Nance Partnership Is