The Heron Partnership was formed on July 1 of the current year and admitted Carl and Megan as equal partners on that date

The Heron Partnership was formed on July 1 of the current year and admitted Carl and Megan as equal partners on that date. The partners each contributed $ 200,000 of cash to establish a children’s clothing store in a local shopping mall. The partners spent July and August buying inventory, equipment, supplies, and advertising for their "Grand Opening" on October 1. Following are some of the costs the partnership incurred during its first year of operations:

Legal fees to form partnership 2,000
Advertising for "Grand Opening" 15,000
Advertising after opening 10,000
Consulting fees for establishing accounting system 5,000
Rent, six months at $ 2,000/ month 12,000
Utilities at $ 600 per month 3 3,600
Salaries to sales clerks 30,000
Payments to Carl and Megan for services ($ 5,000/ month each for three months, beginning in October) 30,000
Tax return preparation expense 5,000

In addition, the partnership purchased all of the assets of Granny Newcombs, Inc. Of the total purchase price for these assets, $ 60,000 was allocated to the trade name and logo.

Determine how each of the above costs is treated by the partnership, and identify the period over which the costs can be deducted, if any.

Click here for the solution: The Heron Partnership was formed on July 1 of the current year and admitted Carl and Megan as equal partners on that date

Tinker Construction had a contract with Scroge to build a factory addition for Scroge by a particular date

Tinker Construction had a contract with Scroge to build a factory addition for Scroge by a particular date. The contract contained a penalty clause exacting daily penalties for late performance, and Tinker was working hard to complete the building on time. Because prompt completion of the addition was so important to Scroge, however, Scroge offered Tinker a bonus if it completed the factory addition on time. Scroge also learned that the supplier of parts for machinery that he had contracted for had called and said that it could not deliver the parts on Scroge’s schedule for the price it had agreed to. Because there was no other supplier, Scroge promised to pay the requested higher price. The factory addition was completed on time and the parts arrived on time. Scroge then refused to pay both the bonus to Tinker and the higher price for the parts. Were these promises enforceable?

Click here for the solution: Tinker Construction had a contract with Scroge to build a factory addition for Scroge by a particular date