Question

Frick and Frack are equal partners in F&F Industries. The company generated net income of $60,000 during the year and distributed $7,000 cash to both Frick and Frack. How much income should Frack report on his individual income tax return due to the partnership interest?

Answer 1

Frack should report $30,000 on his individual income tax return, which represents his 50% share of the net income from F&F Industries.

Step-by-step explanation:

The question relates to how a partner in a partnership should report income on their individual tax return. In a partnership, the net income is divided among the partners according to their partnership agreement. Since Frick and Frack are equal partners in F&F Industries and the company generated a net income of $60,000, that income is split equally between them unless stated otherwise in the partnership agreement. Therefore, Frack is responsible for reporting $30,000 on his individual income tax return, which represents his share of the net income, regardless of the amount of cash distributed during the year. The cash distribution of $7,000 does not affect the income reporting as it is essentially a draw against Frack's share of the net income.