Problem
Sam and Allen Foster are both Chartered Professional Accountants. Since acquiring their professional designations, they have both worked for a large firm of CPAs. However, at the beginning of 2021, they have decided to leave the firm and form a two person partnership specializing in tax and accounting work for owner-managed private corporations.
The agreement for the new partnership calls for business income to be shared equally. In addition, charitable contributions will be allocated equally. However, as Allen has contributed most of the capital for the new partnership, he will receive 80% of any capital gains or dividends received by the partnership.
For the partnership year ending December 31, 2021, the accounting results are as follows:
Sam And Allen Foster
Partnership Income Statement
Year Ending December 31, 2021
Revenues $965,000
Expenses:
Employee Salaries ($114,000)
Office Rent ( 82,000)
Office Supplies ( 30,000)
Amortization ( 32,000)
Business Meals & Entertainment ( 14,000)
Charitable Donations ( 13,000)
Salary to Sam ( 150,000)
Salary to Allen ( 150,000) ( 585,000)
2021 Accounting Business Income $380,000
Other Income:
Capital Gains $ 8,000
Eligible Dividends 16,000 24,000
2021 Accounting Net Income $404,000
Other Information:
• The brothers plan to claim the maximum CCA which is $41,000.
• Due to enormous spousal support payments that each brother is claiming, neither partner will have income subject to the maximum federal tax rate of 33% in 2021.
Required: Ignore GST/HST & PST considerations.
• Calculate the amounts of partnership income and capital gains that would be included in the 2021 income of each brother.