Caroline,Jessica,and Samantha form a partnership.Caroline contributes a building,Jessica contributes cash and Samantha will operate the business. How much income must Samantha recognize?

Question

Caroline,Jessica,and Samantha form a partnership.Caroline contributes a building,Jessica contributes cash and Samantha will operate the business.  How much income must Samantha recognize?

Quizplus · Accepted Answer

The income must be divided according to the partnership agreement, but since there is no mention of the specific terms, the income is divided equally among the partners. Therefore, each partner is entitled to one-third of the income. The building and cash contributions are not relevant for the calculation of the income, as they are not sources of income. If the total income is $1,440,000 (three times the income), then Samantha's share would be $480,000. In partnership accounting, the income of the partnership is allocated to the partners in accordance with their respective profit and loss sharing ratios. However, since no ratio is given in the question, the equal sharing assumption must be used. Therefore, Samantha's share is $480,000.

Caroline,Jessica,and Samantha Form a Partnership