A private club offers a 5% commission on initiation fees for joining students. Ten students join on January 1st with initiation fees of $20,000 and annual dues of $6,000. What is the teacher's reported impact for the upcoming year?

A private club offers a 5% commission on initiation fees for joining students. Ten students join on January 1st with initiation fees of $20,000 and annual dues of $6,000. What is the teacher's reported impact for the upcoming year?

• A. $60,000
• B. $13,000
• C. $200,000
• D. 250,000

Answer: (D)

When estimating the upcoming year’s impact from new members, include the money from initiation fees and annual dues as revenue, but subtract the commission paid on those initiation fees since that is an expense. Ten members × initiation fee of 20,000 equals 200,000. Ten members × annual dues of 6,000 equals 60,000. The commission on initiation fees is 5% of 200,000, which is 10,000 and reduces net revenue. Net impact = 200,000 + 60,000 − 10,000 = 250,000. So the reported impact for the upcoming year is 250,000.

When estimating the upcoming year’s impact from new members, include the money from initiation fees and annual dues as revenue, but subtract the commission paid on those initiation fees since that is an expense.

Ten members × initiation fee of 20,000 equals 200,000. Ten members × annual dues of 6,000 equals 60,000. The commission on initiation fees is 5% of 200,000, which is 10,000 and reduces net revenue.

Net impact = 200,000 + 60,000 − 10,000 = 250,000.

So the reported impact for the upcoming year is 250,000.