Bean and D. Counter formed a partnership. During the current year, the partnership had the following income and expenses: Gross income from operations$135,000Gain on sale of antique abacus (a business asset)4,000Interest income from business bank account100Deductions:Salaries to employees$65,000Payroll taxes5,000Rent8,000Depreciation3,500Contribution to United Way charity2,000Foreign tax paid on overseas business deals3,000Distributions to the partners$40,000Calculate the net ordinary income. List all of the other items that need to be separately reported. If the partnership is on a calendar year tax basis, when is the partnership tax return due?

Answered: Bean and D. Counter formed a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Bean and D. Counter formed a partnership. During the current year, the partnership had the following income and expenses:

Gross income from operations	$135,000
Gain on sale of antique abacus (a business asset)	4,000
Interest income from business bank account	100
Deductions:
Salaries to employees	$65,000
Payroll taxes	5,000
Rent	8,000
Depreciation	3,500
Contribution to United Way charity	2,000
Foreign tax paid on overseas business deals	3,000
Distributions to the partners	$40,000

Calculate the net ordinary income.

List all of the other items that need to be separately reported.

If the partnership is on a calendar year tax basis, when is the partnership tax return due?

Expert Solution

Step 1

$\begin{array}{rcl} D e d u c t i o n s a l l o w e d f r o m o r d i n a r y i n c o m e & = & S a l a r y + P a y r o l l T a x + R e n t + D e p r e c i a t i o n \\ = & $ 65, 000 + $ 5, 000 + $ 8, 000 + $ 3, 500 \\ = & $ 81, 500 \end{array}$

Step 2

$\begin{array}{rcl} N e t o r d i n a r y i n c o m e & = & G r o s s O r d i n a r y i n c o m e - D e d u c t i o n s a l l o w e d \\ = & $ 135, 000 - $ 81, 500 \\ = & $ 53, 500 \end{array}$

Items that are to reported separately are;

Gain on Antique abacus as it is a capital gain.
Income from bank as interest income.
Charitable contribution.
Foreign tax paid as tax credits.

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