On November 30, capital balances are Howe $90,000, Doss $75,000 and Newlin $75,000. The income ratios are 20%, 20% and 60%, respectively. Howe decides to retire from the partnership. The partnership pays Howe $75,000 cash for her partnership interest. After Howe's retirement, what is the balance of Newlin's capital account?

Question

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To start, let's calculate each partner's capital balances before Howe's retirement:
- Howe: $90,000 x 20% = $18,000
- Doss: $75,000 x 20% = $15,000
- Newlin: $75,000 x 60% = $45,000

Now that Howe is retiring, the partnership will pay her $75,000 for her interest. This means that the total value of the partnership must be $240,000 ($90,000 + $75,000 + $75,000 = $240,000). After the payment to Howe, the remaining balance will be split between Doss and Newlin.

Doss's share is easy to calculate: $75,000 x 20% = $15,000. So after paying Howe, Doss will have a capital balance of $90,000 ($75,000 + $15,000).

Now we can calculate Newlin's share. First, we subtract the payment to Howe from the total partnership value: $240,000 - $75,000 = $165,000. Then we divide this amount between Doss and Newlin based on their income ratios:
- Doss: $165,000 x 20% = $33,000
- Newlin: $165,000 x 60% = $99,000

Adding this to Newlin's original capital balance of $75,000, we get a final balance of $174,000 ($75,000 + $99,000). Therefore, the correct answer is D.

On November 30, Capital Balances Are Howe $90,000, Doss $75,000