FredCo and Fran are equal partners in the calendar year F & FPartnership. FredCo

Question

FredCo and Fran are equal partners in the calendar year F & FPartnership. FredCo uses a fiscal year ending June 30, and Fran uses acalendar year. FredCo receives an annual guaranteed payment of $50,000. F &F’s taxable income (after deducting FredCo’s guaranteed payment) is $40,000 for 2010 and $50,000 for 2011.

A. What is the amount of income from the partnership that FredCo must reportfor its tax year ending June 30, 2011?

B. What is the amount of income from the partnership that Fran must report for her tax year ending December 31, 2011?

Explanation / Answer

A. FredCo must report its tax starting from 1st july 2010 and ending on June30, 2011.So, the Answer will be as Follow:-

Taxable Income Share from 2010 profits(Note 1)=20000/2(Divided by two for Fredco's Share)=$10000

Taxable Income Share from 2011 Profits(Note 2)=25000/2(Divided by tw for Fredco's Share)=$12500

Annual Guaranteed Payment= (Assumed that this payment was made last year also) $50000

$72500   

Note 1. 2010 taxable Income(from july to december, 2010)=$40000*6/12=20000

Note 2. 2011 taxable Income(from Jan to June,2011)=$50000*6/12=25000

B.Fran must report its tax for 2011.So, the Answer will be as Follow:-

Taxable Income Share from 2011 profits=50000/2(Divided by two to calculate Frans' Share)=$25000

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