Question

Question Number 5:

King Burger is a fast food restaurant operating as partnership firm of four individuals. The partners agree to share profit equally. The information regarding current year is as follows:

                  Watson            Taylor             Hayden               Dravid

Capital             $550,000          $600,000          $500,000             $650,000

Drawing           150,000          150,000          100,000               200,000           

Net income for the year amounted to $2,500,000.

Instructions:

1. How much must each of four partners report income on his income tax return?
2. Prepare Statement of Partner’s Equity for current year ended Dec 31, 2019?

Answer 1

Net income = $2,500,000

Partners will divide the profit equally, therefore share of each partner will be 1/4

Therefore each partner will report income in his income tax return will be

= 2,500,000*1/4

= $625,000

Partners equity for current year will be

Total capital = 550,000 + 600,000 + 500,000 + 650,000

= $2,300,000

Total drawings = 150,000 + 150,000 + 100,000 + 200,000

= $600,000

Net income = $2,500,000

Total partners equity

= $ 4,200,000

Individual partner balance = Capital - Drawing + Net income share

Dravid = 550,000 - 150,000 + 625,000 = $1,025,000

Watson = 600,000 - 150,000 + 625,000 = $1,075,000

Taylor = 500,000 - 100,000 + 625,000 = $1,025,000

Hayden = 650,000 - 200,000 + 625,000 = $1,075,000

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