Don and Joe went into business together as equal co-owners. Joe had a lot of money...
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Don and Joe went into business together as equal co-owners. Joe had a lot of money but l no business sense and Don had the "know how". Don and Joe each invested $10,000 and Joe loaned the business $90,000. Chase loaned the business another $100,000 after Joe and Don agreed to guarantee the loan. In the first year, as is typical, the business struggled and incurred ordinary operating income of $50,000, excluding the payment promised to Don of $65,000 annually for his labor. The business earned interest income of $2000, a short term capital loss of $4000, and made qualified charitable contributions of $1000. In the second year of business ordinary operating income was $32,000. including the promised amount for Don's labor. The business earned $1200 in interest income and incurred a $1500 capital gain and paid $2500 in qualified charitable contributions. Joe was repaid $10,000 for his loan and Chase received $3000 in principal payments. An equal distribution of $4000 was made to each owner. Calculate both owners "at risk" basis at year end for both years, showing all your work (1) first assuming the entity is a partnership and (2) second assuming it is a S Corporation. Don and Joe went into business together as equal co-owners. Joe had a lot of money but l no business sense and Don had the "know how". Don and Joe each invested $10,000 and Joe loaned the business $90,000. Chase loaned the business another $100,000 after Joe and Don agreed to guarantee the loan. In the first year, as is typical, the business struggled and incurred ordinary operating income of $50,000, excluding the payment promised to Don of $65,000 annually for his labor. The business earned interest income of $2000, a short term capital loss of $4000, and made qualified charitable contributions of $1000. In the second year of business ordinary operating income was $32,000. including the promised amount for Don's labor. The business earned $1200 in interest income and incurred a $1500 capital gain and paid $2500 in qualified charitable contributions. Joe was repaid $10,000 for his loan and Chase received $3000 in principal payments. An equal distribution of $4000 was made to each owner. Calculate both owners "at risk" basis at year end for both years, showing all your work (1) first assuming the entity is a partnership and (2) second assuming it is a S Corporation.
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Partnership i The partners liability for the businesss debts is infinite ii Each partner is jointly ... View the full answer
Related Book For
Essentials of Organizational Behavior An Evidence based Approach
ISBN: 978-1506388465
2nd edition
Authors: Terri A. Scandura
Posted Date:
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