Jackson and O'Neill Open a Partnership That Produces Gates

question 120

Multiple Choice

Jackson and O'Neill open a partnership that produces gates.Jackson provides $30,000 of capital while O'Neill contributes $90,000 of capital;they agree to split net income by the same proportion.The partnership's net income is $80,000 for the first year.They did not draw any income out of the business or add any additional capital during the first year.At the end of the year,the partners' equity is:

• A)$70,000 for Jackson and $130,000 for O'Neill for a total of $200,000.
• B)$200,000 minus income tax expense for the partnership.
• C)$200,000 minus the income tax paid by each partner.
• D)$50,000 for Jackson and $150,000 for O'Neill for a total of $200,000.

---

Definitions:

Accounting Rate of Return

A financial metric used to measure the profitability of an investment, calculated by dividing the average annual profit by the initial investment cost.

After-Tax Income

The amount of money an individual or company retains after all federal, state, and withholding taxes have been deducted from taxable income.

Payback Period

The time it takes for an investment to generate an amount of income or cash flow to recover the cost of the investment, indicating the investment's risk and liquidity.

Annual Cash Inflows

The total amount of money received by a company or individual in a year from various sources, excluding borrowings.