Question #1: Jill and Tilly Masterson share the same last name but are not related. They met each other a number of years previously when they attended the Canadian Memorial Chiropractic College in Toronto. Last year they discovered that both had moved to Edmonton and, over coffee, they learned that neither was happy in the practice where they work. They decided to create a partnership and go out on their own. Masterson Chiropractic Services started business at the beginning of the current year.

Jill contributed most of the capital for the new partnership so it was determined that she will receive 80 percent of any capital gains or dividends received by the partnership. The partnership agreement was set up at the beginning of 20XX and calls for business income to be shared equally. Because local interests are important to both of them, the partnership makes some charitable contributions, which are also shared equally per the agreement.

For the year ending December 31, 20XX, their results, prepared on a GAAP basis are as follows:

Masterson Chiropractic Services Partnership Income Statement Year Ending December 31, 20XX -- -- -- - Accounting net income $280,000