Asked by Talia Miller on Apr 26, 2024
Verified
Michelle receives $210000 and Stephanie receives $140000 in a split of $350000 net income. Which expression does not reflect the income splitting arrangement?
A) 3:2
B) 3/5 & 2/5
C) 6:4
D) 2:1
Net Income
A company's remaining earnings after deducting all taxes and costs from the complete revenue.
Income Splitting
A tax strategy used to transfer income from a higher-tax-rate taxpayer to a lower-tax-rate taxpayer to reduce the total tax paid.
- Apply the income and loss sharing ratios in partnerships to solve for distributions and capital allocations.
Verified Answer
MF
Marcelle FernandezApr 28, 2024
Final Answer :
D
Explanation :
The correct income splitting arrangement between Michelle and Stephanie is in the ratio of 3:2, since Michelle receives $210,000 and Stephanie receives $140,000 out of a total of $350,000. This can also be represented as fractions 3/5 and 2/5, or simplified ratio 6:4 (which is equivalent to 3:2). The option 2:1 does not accurately reflect the given income split.
Learning Objectives
- Apply the income and loss sharing ratios in partnerships to solve for distributions and capital allocations.
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