ExpertHard1 markMultiple Choice
CPA · Question 71 · Area V: Entity Taxation
A partner in a partnership receives a guaranteed payment of $10,000 for services rendered. The partnership has $50,000 of ordinary income before the guaranteed payment. The partner has a 50% profit interest. What is the partner's total income from the partnership?
A partner in a partnership receives a guaranteed payment of $10,000 for services rendered. The partnership has $50,000 of ordinary income before the guaranteed payment. The partner has a 50% profit interest. What is the partner's total income from the partnership?
Answer options:
A.
$35,000
B.
$25,000
C.
$30,000
D.
$60,000
How to approach this question
Step 1: Deduct GP from Partnership Income. Step 2: Allocate remaining income. Step 3: Add GP back to Partner's total.
Full Answer
C.$30,000✓ Correct
The guaranteed payment is deductible by the partnership. Net Ordinary Income = $50,000 - $10,000 = $40,000. Partner's 50% share = $20,000. Partner reports $20,000 ordinary income + $10,000 guaranteed payment = $30,000 total.
Common mistakes
Forgetting to deduct the GP from the partnership income before applying the percentage.
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