Question

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

1.As the profits are shared equally among all partners, they must report income as follows:

Watson = 2,500,000 / 4 = $6,25,000

Taylor = 2,500,000 / 4 = $6,25,000

Hayden = 2,500,000 / 4 = $6,25,000

Dravid = 2,500,000 / 4 = $6,25,000

2. Statement of Equity

Particulars	Watson	Taylor	Hayden	Dravid
Capital	5,50,000	6,00,000	500,000	650,000
Less: Drawings	150,000	150,000	1,00,000	2,00,000
Add: Profits	6,25,000	6,25,000	6,25,000	6,25,000
Equity at the end of year	10,25,000	10,75,000	10,25,000	10,50,000