Individual O Owned a Sole Proprietorship with a Net Value

question 34

Multiple Choice

Individual O owned a sole proprietorship with a net value of $400,000.At the beginning of the current year, O created a partnership by giving a 20% interest in the business to his best friend M, and a 30% interest in the business to his daughter D.During the current year, O performed services for the partnership worth $20,000, although he chose not to bill the partnership for his work.The partnership's operating income for the year is $160,000.Based on these facts, the maximum amount of this income allocable to M and D is:

• A)Any amount as long as the allocation has substantial economic effect within the meaning of § 704(b).
• B)The maximum allocations to M and D respectively are $28,000 and $42,000.
• C)The maximum allocation to D is $42,000; any amount may be allocated to M as long as the allocation has substantial economic effect.
• D)The maximum allocation to D is $48,000; any amount may be allocated to M as long as the allocation has substantial economic effect.
• E)The maximum allocations to M and D respectively are $32,000 and $48,000.

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Definitions:

Perceived Risk

The potential for loss or harm that consumers feel may exist when deciding to purchase a product or service.

Actual Performance

The real, measured outcomes or results of an activity, process, or product, as opposed to expectations or projections.

Business-To-Business Marketing

Marketing strategies and tactics directed towards other businesses rather than to individual consumers.

Competitive Bidding

A procurement process where multiple providers submit bids to win a contract, primarily based on price and quality.