PaulCo, DavidCo, and Sean form a partnership with cash contributions of $80,000, $50,000 and $30,000, respectively, and agree to share profits and losses in the ratio of their original cash contributions. PaulCo uses a January 31 fiscal year-end, while DavidCo and Sean use a November 30 and December 31 year-end, respectively. The partnership must use the least aggregate deferral method to determine its year end.

Question

Quizplus · Accepted Answer

Since the partnership must use the least aggregate deferral method, the partners' fiscal year-ends must be brought into conformity. This means that the partnership must adopt a common fiscal year-end that is not more than three months after the later of the individual year-ends. In this case, December 31 is the latest year-end, so the partnership could adopt a March 31 fiscal year-end. However, since the difference between the December 31 and January 31 year-ends is only one month, the partnership may opt to use the January 31 year-end to avoid the extra effort and expense of preparing a separate set of financial statements for the short year. Therefore, the statement is true.

PaulCo, DavidCo, and Sean Form a Partnership with Cash Contributions