Question

Howell Partnership has two partners (each 50% interest), Al and Cal. Howell generated ordinary income of $20,000 this year, but only made a cash distribution of $10,000 to Al. Which of the following best describes the income that Al and Cal will recognize this year?

a) $20,000 each
b) $10,000 each
c) $20,000 for Al, $10,000 for Cal
d) $10,000 for Al, $10,000 for Cal

Answer 1

Howell Partnership has two partners with a 50% interest each. Al and Cal will each recognize $10,000 of income for the year.

Step-by-step explanation:

According to the information provided, Howell Partnership has two partners, namely Al and Cal, who each have a 50% interest in the partnership. Howell generated an ordinary income of $20,000 this year but only made a cash distribution of $10,000 to Al.

In this case, the partners will recognize income based on the profits and losses allocated to their respective partnership interests. Since both partners have an equal 50% interest, they will share the income and losses equally.

Therefore, the correct answer is option d) $10,000 for Al, $10,000 for Cal. Each partner will recognize $10,000 of ordinary income for the year.