At the beginning of this year, Edmond and Samuel were equal partners in a partnership that uses the calendar year as its tax year. On October 1, this year, Joan contributed $48,000 cash for a one-third interest in the partnership. The interests of both Edmond and Samuel drop to one-third. The partnership reports a $36,000 ordinary loss for the current tax year ending December 31. The loss allocation to Samuel (one of the original partners)is
A)$12,000.
B)$13,500.
C)$16,500.
D)$18,000.

Question

Quizplus · Accepted Answer

Since Joan contributed $48,000 for a one-third interest in the partnership on October 1, this year, the partnership existed for 9 months before October 1 and thus the original partners (Edmond and Samuel) were entitled to 9/12 (or 3/4) of the loss allocation. Therefore, the loss allocation for Edmond and Samuel would be (3/4) x $36,000 = $27,000.

Since Edmond and Samuel now both have one-third interests in the partnership, their share of the loss allocation is determined separately. Each of them would be allocated (1/3) x $36,000 = $12,000 of the loss.

Therefore, the loss allocation to Samuel (one of the original partners) is $12,000.

At the Beginning of This Year, Edmond and Samuel Were