Question

Barber and Atkins are partners in an accounting firm and share net income and loss equally. Barber's beginning partnership capital balance for the current year is $285,000, and Atkins's beginning partnership capital balance for the current year is $370,000. The partnership had net income of $250,000 for the year. Barber withdrew $90,000 during the year and Atkins withdrew $100,000. What is Barber's return on equity?

Answer 1

Answer:

Barber's Return on Equity (ROE) is 1.28%

Explanation:

The formula to compute the ROE of Barber is:

ROE = Net Income / Shareholder's Equity

        = $250,000 / $195,000

        = 1.28%

It is a measure of the profitability ratio which evaluates the firm ability for generating profits from investment of shareholders.

Working Note:

Shareholder Equity of Barber = Beginning capital - Withdrew amount

                                                 = $285,000 - $90,000

                                                 = $195,000