Rowan and Sanjay Are Equal Partners in a Partnership, Which

question 2165

Multiple Choice

Rowan and Sanjay are equal partners in a partnership, which uses the calendar year as its tax year. On September 1, this year, Hailley contributed $60,000 cash for a one- third interest in the partnership. The partnership reports $72,000 of ordinary income for the tax year ending on December 31 of this year. The income allocation to Hailley is (assume the elective proration method with a monthly convention)

• A) $24,000.
• B) $12,000.
• C) $8,000.
• D) $0.

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Definitions:

Direct Labor Hours

The total hours worked by employees directly involved in manufacturing or producing a company's products.

Budgeted Overhead

Forecasted costs associated with running a company that are not directly tied to a specific product or service.

Actual Overhead

The actual amount of overhead costs incurred by a company during a specific period.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products by estimating overhead costs in advance.