Because it was anticipated that Bob Short would devote more time to the partners

Question

Because it was anticipated that Bob Short would devote more time to the partnership than would his equal partner Jack Long, it was agreed that Bob would receive a "salary" of $ 12,000 per year. Bob and Jack agreed to divide the remaining partnership income equally. For the current year, prior to consideration of Bobs salary, the partnership income was composed of $6,000 long-term capital gain, $2,000 tax-exempt interest, and $8,000 loss from operations. Determine the amount and character of income (loss) reportable by Bob and Jack for the current year.

Explanation / Answer

                                                  Bob                Jack

Long term Capital Gain               3,000               3,000

Tax free interest                         1,000 1,000

Loss from operation    10,000 10,000   

(Business Loss)

Salary Income                         12,000

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