Leonard and Penny, a Married Couple, Formed the Equally Owned

question 51

Multiple Choice

Leonard and Penny, a married couple, formed the equally owned calendar year PL LLC several years ago. Capital is a material income-producing factor for the LLC. On July 1 of this year, they each transferred a 20% interest to their son, Sheldon after the transfer, 40% is owned by Sheldon; Leonard and Penny each retained 30% interests) . For the current tax year, PL reported income of $300,000, which was earned evenly throughout the year. Penny provides uncompensated services to the partnership valued at $100,000; Leonard and Sheldon provide no services. How much income will be allocated to Penny, Leonard, and Sheldon for the year?

• A) $300,000 to Penny, $0 to Leonard, $0 to Sheldon.
• B) $90,000 to Penny, $90,000 to Leonard, $120,000 to Sheldon.
• C) $120,000 to Penny, $120,000 to Leonard, $60,000 to Sheldon.
• D) $160,000 to Penny, $60,000 to Leonard, $80,000 to Sheldon.
• E) $180,000 to Penny, $80,000 to Leonard, $40,000 to Sheldon.

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Definitions:

Parent-Company Extension Method

An accounting method used in consolidation that treats investments in subsidiaries as if they are direct extension of the parent company's operations, integrating their accounts directly.

Impairment Of Goodwill

An accounting charge that occurs when the book value of goodwill exceeds its recoverable amount.

Subsidiary Company

A company that is controlled by another, larger corporation, known as the parent company or holding company.

Gross Margin

A financial metric indicating the difference between revenue and the cost of goods sold, divided by revenue, expressed as a percentage, showing the efficiency of a company in managing its production and distribution costs.