| Given: |
|
|
| 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. |
|
|
|
| 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. |
|
| 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 |
|
| 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: |
| |
| The remaining net income
(loss) is distributed according to the partner’s share of ownership. Income
and loss distributions are the same percentage. |
|
| Task: |
|
| 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.) |
|
|
|
|
| 302.2.2-01-06 (2006) |
|
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|
| SUBDOMAIN 302.2 – FEDERAL INCOME TAX |
|
| Competency 302.2.2: Tax Treatments for
Partnerships, Estates, and Trusts – The student determines the tax treatment
for partnerships, estates, and trusts. |
|
| 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. |
|
