Hot Dog Shack is a fast-food restaurant that is operated as a partnership of three individuals. The three partners share profits equally. The following selected account balances are for the current year before any closing entries are made:

Instructions
On the basis of this information, answer the following questions and show any necessary computations.
a. How much must each of the three partners report on his individual income tax return related to this business?
b. Prepare a Statement of Partners’ Equity for the current year ended December 31. Assume that no partner has made an additional investment during the year.
c. Assuming that each of the partners devotes the same amount of time to the business, why might Glen and Chow consider the profit-sharing agreement to be inequitable?
d. Which factors should the partners consider when evaluating whether the profit from the partnership isadequate?

Transcribed Image Text:

Debit Credit 55,000 60,000 5,000 Glen, Capital Chow, Capital. West, Capital Glen, Drawing Chow, Drawing West, Drawing Income Summary 2 1,000 1,000 30,000 5 90,000