Emily Lenk, George Arenes, and Owen Geertz carry on a consulting service business through a partnership. They have all been active in the business. Based on their partnership agreement, Emily, George, and Owen each share 30%, 30%, and 40% of the partnership’s profits and losses respectively. In the current year, they each receive a salary of $40,000 from the partnership.

The following is the income statement of their partnership for its taxation year 2022. Emily & Owen Partnership Income Statement For the Year Ended December 31, 2022

Income: 

Consulting service fees $380,000 

Gain on sale of public company shares 32,000 

Eligible dividends 15,000 

Capital dividends 13,000 

Interest income 5,000

Expenses: 

Office rent 18,000 

Capital cost allowance 11,000 

Salaries paid to staff 45,000 

Salaries paid to partners 120,000 

Donations to registered charities 3,000 

Loss on sale of land 12,000 

Net income $236,000

Required: 

A. Compute the net income for tax purposes for the partnership for 2022.

B. How much business income is allocated to Owen from the partnership in 2022?

C. Based on the information given, compute Owen’s taxable income for 2022.

D. On December 31, 2022, Owen is considering selling his partnership interest for $390,000. The ACB of his partnership interest at the beginning of the year had a balance of $75,000. Calculate any gain or loss for tax purposes on the sale. Show all calculations.

Answer rating: 100% (QA)

A Compute the net income for ... View the full answer