A partnership is owned by a mother (60%) and her son (40%). Their capital accoun

Question

A partnership is owned by a mother (60%) and her son (40%). Their capital accounts are maintained in the same ratio. The son received his ownership interest as a gift from his mother several years ago. Partnership income for the current year was $50,000. Although the mother performed services valued at $10,000, there was no entry on the partnership books and she received no cash for her services. To avoid a reallocation by the IRS, what amount should be allocated to the mother? A. $20,000 B. $30,000 C. $34,000 D. $40,000

Explanation / Answer

share in profit = 50000*60%=30000

plus: service value = 10000

total amount provided to mother = 30000+10000=40000

Ans is ( D)

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