Given: | | |
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The
Year 10 financial statements for a partnership, Fan Company A, have been
provided on the “Year 10 Financial Statements” worksheet (see
the “Partnership Income and |
Tax”
attachment below). The Year 11 financial data is also provided on the “Year
11 Financial Data” worksheet (see the “Partnership Income and Tax” attachment
below). |
Use
‘Admit Partner D to Partnership’ template section for this data. |
On
January 1, Year 11, Partner A died. The partnership agreement stipulated that
in the event of a partner’s death, the partner’s interest would be paid to
the estate within |
90
days of the date of death. The balances in the partnership accounts were
determined on January 1. The partnership has the authority by the partnership
agreement to sell |
the
deceased partner’s interest at a minimum of 100% of the capital account at
the date of death. The remaining partners found an interested party, Partner
D, who paid |
$350,000
for Partner A’s interest. The partnership agreement specifies that any bonus
accruing from the sale of a deceased partner’s interest will be added to the
remaining |
partners
as of the date of death. Partner B will receive 5/8 of the bonus and Partner
C will receive 3/8 of the bonus. |
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| PARTNER e PD 350000. FOR 307120.00 |
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Use
‘REALIGNMENT OF PARTNERSHIP ALLOCATIONS’ template section for this data. |
On
October 1, Year 11, the partners agreed to add a new partner. Partner E will
own a 20% share of the partnership. Partner E has some expertise that will
benefit the |
partnership.
Partner E is investing $50,000 and land worth a fair market value of
$200,000. The partnership will assume the $60,000 mortgage remaining on the
land. The ownership allocations will be |
realigned
to allow this new owner a 20% interest. |
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On
December 31, Year 11: |
The
partnership agreement states that all capital balances are paid a 10%
interest allowance based on the balance on December 31, before any |
| distributions of net income or
salary allowances. Partner E’s interest allowance in this first year will be
based on three months of ownership interest in the partnership. |
The
partnership agreement stipulates that Partner B and Partner C each receive a
salary allowance of $30,000. |
A
review of the withdrawals by the partners taken during the year revealed the
following amounts for each partner: |
| Partner B, $60,000;
Partner C, $35,000; Partner D, $15,000; and Partner E, $30,000. |
The
remaining net income (loss) is distributed according to the partner’s share
of ownership. Income and loss distributions are the same percentage. |
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Task: | | |
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A.
Perform the calculations necessary to complete the following financial
statements using the information provided in the given and the Excel
templates provided. |
1.
Income Statement for Year 11 (Use the “Year 11
Partnership Distribution” worksheet found in the “Partnership Income and Tax”
attachment below.) |
2.
Partnership Distribution for Year 11 (Use the “Year
11 Partnership Distribution” worksheet found in the “Partnership Income and
Tax” attachment below.) |
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302.2.2-01-06
(2006) | |
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SUBDOMAIN
302.2 – FEDERAL INCOME TAX |
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Competency
302.2.2: Tax Treatments for Partnerships, Estates, and Trusts – The student
determines the tax treatment for partnerships, estates, and trusts. |
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Objectives: | |
302.2.2-01:
Calculate ordinary income for a partnership. |
302.3.2-02:
Reconcile taxable income to book income. |
302.2.2-03:
Calculate the basis of a partner’s interest. |
302.3.2-04:
Calculate the impact of applying tax law to assets contributed to a
partnership. |
302.2.2-05:
Calculate the impact of applying tax law to partnership liabilities. |
302.3.2-06:
Calculate the impact of applying tax law for various ways that ownership in a
partnership changes. |