Asked by Prabha Karki on Jul 02, 2024
Verified
Rich is a partner in RKW partnership.Rich owned 50% through January 1,2017 through April 30,2017,when he bought Kevin's 25% interest.He owned 75% for the rest of the year (assume a 365-day year) .The partnership had ordinary income of $150,000 and $25,000 in long-term capital gains.Barring any special allocations in a partnership agreement,Rich's share of the income items is (round the answers up to the nearest whole dollar) :
A) $75,000 ordinary income;$12,500 capital gain.
B) $100,172 ordinary income;$16,696 capital gain.
C) $112,500 ordinary income;$18,750 capital gain.
D) $150,000 ordinary income;$25,000 capital gain.
Long-term Capital Gains
Profits from the sale of an asset held for more than a year, generally taxed at lower rates than ordinary income.
Ordinary Income
Income earned from providing services or the sale of goods, typically subject to standard tax rates, as opposed to income classified as capital gains.
- Distinguish between normal and capital gains and losses in relation to partnerships.
Verified Answer
ZK
Zybrea KnightJul 03, 2024
Final Answer :
B
Explanation :
Rich's share of the income is calculated based on his ownership percentage throughout the year. For the first 120 days (January 1 to April 30), he owns 50% of the partnership, and for the remaining 245 days (May 1 to December 31), he owns 75%. The calculation for each income type is as follows:Ordinary income share = [(50% * $150,000 * 120/365) + (75% * $150,000 * 245/365)] = $100,172 (rounded up)Capital gain share = [(50% * $25,000 * 120/365) + (75% * $25,000 * 245/365)] = $16,696 (rounded up)
Learning Objectives
- Distinguish between normal and capital gains and losses in relation to partnerships.
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