Reference no: EM132672234
Problem - Accounting Period and Method
Pearl, Inc. (a C corporation), Tweety, Inc. (an S corporation), and Belinda (an individual) are going to form a partnership (Silver Partnership). The ownership interests and tax years of the partners are as follows:
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Partner
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Partnership Interest
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Tax Year Ends
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Belinda
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25%
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December 31
|
|
Pearl, Inc.
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35%
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November 30
|
|
Tweety, Inc.
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40%
|
June 30
|
The partnership expects to begin business on April 1, 2019. The partners have several issues they would like you to address.
A potential conflict exists among the partners regarding when the tax year should end for Silver. Belinda and Pearl would like a year-end close to their own year-ends, and Tweety would like to have a June 30 year-end. Is this a decision Tweety can make because it owns more of the partnership than either of the other two partners? Is this a decision Belinda and Pearl can make because collectively they own more of the partnership than Tweety owns?
Because Silver will begin business on April 1, 2019, will the first tax year be a "short" tax year? Will annualization of the net income of the partnership be required?
How will the partners know when their share of Silver's net income or net loss should be reported on their respective income tax returns?
Belinda is a cash basis taxpayer, and the other partners use the accrual method to report their incomes. What accounting method must be used to compute Belinda's share of the partnership income?