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Question $3$

Ernie and Young formed a partnership on February $1,2018$ to carry on their Accounting business. Each

partner contributed $$30,000$ to the partnership to start up the business. The partnership agreement

provides that they will share equally the profits from the partnership.

Ernie sold his partnership interest to Dolittle for $$450,000$ at the end of the $2021$ fiscal year of the

partnership.

The income statement from the partnership is as follows:

Ernie & Young, Accountants

Income Statement

For the year ended December $31,2021$

Gross Revenue:

Expenses:

Office Supplies

Drafting materials

Rent

Heat and electricity

Office Salaries

Charitable donations

Depreciation $($note $1)$

Partner salaries $($note $2)$

Other Income:

Gain on sale of shares $($note $3)$

Non$-$eligible dividends from Canadian Corporations

Net Income:

Note $1$: CCA for $2021$ was $$48,000$

Note $2$: In $2021,$ each partner drew $$20,000,$ in addition to each receiving a salary of $$100,000.$

Note $3$: The capital gain for tax purposes is the same as the accounting book gain.

Prior year financial statements for the partnership provided the following cumulative information for

the $2018$ to $2020$ fiscal years ended December $31.$

Required: Compute Ernie's taxable income for $2021.$ Show all components of his taxable income and

show all calculations.

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