Question

knowledge check 01
beginning partner equity $ 375,000
ending partner equity 465,000
net sales 850,000
net income 140,000
cash distributions 50,000
the return on equity for the total partnership is:
3.0%
11.9%
16.5%
202.3%
33.3%

Explanation:

Step1: Calculate average partner equity

Average partner equity = $\frac{Beginning\ partner\ equity + Ending\ partner\ equity}{2}$
$=\frac{375000 + 465000}{2}$
$=\frac{840000}{2}=420000$

Step2: Calculate return on equity (ROE)

ROE formula is $ROE=\frac{Net\ income}{Average\ partner\ equity}\times100\%$
Substitute net income = 140000 and average partner equity = 420000
$ROE=\frac{140000}{420000}\times 100\%$
$=\frac{1}{3}\times100\%\approx33.3\%$

Answer:

33.3%