Assume individual taxpayer A owns 60% of an undocumented General Partnership E and individual B owns 40% during all of 2020. A spent 50% of her time working at E's business, while B was absent all year. E generated $100,000 of net profit for 2017. A pointed out that a reasonable salary for her would be $20,000 per year, and so they should split the remaining $80,000, but B replied that since there was no partnership agreement, her claim for a salary wasn't valid. What is the federal taxable income of A and B arising from E in 2020 and why?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
Assume individual taxpayer A owns 60% of an undocumented General Partnership E
and individual B owns 40% during all of 2020. A spent 50% of her time working at E's
business, while B was absent all year. E generated $100,000 of net profit for 2017. A
pointed out that a reasonable salary for her would be $20,000 per year, and so they
should split the remaining $80,000, but B replied that since there was no partnership
agreement, her claim for a salary wasn't valid. What is the federal taxable income of A
and B arising from E in 2020 and why?
Transcribed Image Text:Assume individual taxpayer A owns 60% of an undocumented General Partnership E and individual B owns 40% during all of 2020. A spent 50% of her time working at E's business, while B was absent all year. E generated $100,000 of net profit for 2017. A pointed out that a reasonable salary for her would be $20,000 per year, and so they should split the remaining $80,000, but B replied that since there was no partnership agreement, her claim for a salary wasn't valid. What is the federal taxable income of A and B arising from E in 2020 and why?
Expert Solution
steps

Step by step

Solved in 2 steps with 1 images

Blurred answer
Knowledge Booster
Partners and Partnerships
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education