At the beginning of this year,Edmond and Samuel were equal partners in a partnership that uses the calendar year as its tax year.On October 1,this year,Joan contributed $48,000 cash for a one-third interest in the partnership.The interests of both Edmond and Samuel drop to one-third.The partnership reports a $36,000 ordinary loss for the current tax year ending December 31.The loss allocation to Samuel is (assume the elective proration method with a monthly convention)

Question

Quizplus · Accepted Answer

Under the elective proration method with a monthly convention, the allocation of the loss is determined by multiplying the monthly allocation by the number of months the partnership interest was held by each partner during the year. Since Joan contributed cash on October 1, she held the interest for 3 months (October, November, and December).

The monthly allocation of the loss is $36,000 divided by 12 months = $3,000.

Before Joan's contribution, Edmond and Samuel shared a two-thirds interest in the partnership. They each held their interest for 9 months (January-September). Therefore, their allocation of the loss is:
($3,000 x 9 months) x 2 partners = $54,000 total loss allocation before Joan's contribution.

After Joan's contribution, all partners hold one-third interest in the partnership. Since Joan held her interest for only 3 months, her allocation of the loss is:
$3,000 x 3 months = $9,000.

The remaining $27,000 ($36,000 total loss - $9,000 allocated to Joan) is split between Edmond and Samuel. Since they both now hold one-third interest in the partnership, they split the remaining loss equally:
$27,000 divided by 2 partners = $13,500 loss allocation to each of Edmond and Samuel.

Therefore, the answer is C ($16,500).

At the Beginning of This Year,Edmond and Samuel Were Equal