Timmy and Tammy are in partnership in equal shares and carry on a business of selling comic books. They agree that Timmy will receive a wage of $50,000 because he works in the shop. Tammy received interest of $20,000 on her partnership capital account. Timmy has wages from his lecturing job of $70,000 and Tammy has unfranked dividends of $60,000. Both have individual gift deductions in the amount of $4,500 for Timmy and $3,500 for Tammy. They do not employ any staff.

The accounts for the 2018 tax year showed the following:

Sales of comic books $440,000

Purchase of comic books $225,000

Value of comic books on hand 30 June 2017 $85,000

Value of comic books on hand 30 June 2018 $46,000

Wages to Timmy $50,000

Interest to Tammy on her capital account $20,000

Shop Rent $30,000

Electricity and Telephone for the shop $7,000

Required:

(a) What is the net income or net loss of the partnership for the 2018 tax year?

Net Income = AI -D with modifications

(b) What is the distribution of the net income or net loss of the partnership between the partners for the 2018 tax year?

1. Allocate the salary to the partner

2. Allocate the interest paid to the partner on the partners capital account

3. Fixed % currently 50/50

(c) What is the taxable income of each of the partners for the 2018 tax year?

Timmy = AI- D

Tammy = AI- D

Answer rating: 100% (QA)

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