ExpertMedium1 markMultiple Choice
CPA · Question 54 · Area 4: Entity Taxation
A partner is entitled to a Guaranteed Payment of ,000. The partnership has ,000 of ordinary income before the guaranteed payment. What amount of income does the partner report, and what is the partnership's reported ordinary income?
A partner is entitled to a Guaranteed Payment of ,000. The partnership has ,000 of ordinary income before the guaranteed payment. What amount of income does the partner report, and what is the partnership's reported ordinary income?
Answer options:
A.
Partner: ,000 GP; Partnership: ,000 Income
B.
Partner: ,000 GP + share of income; Partnership: ,000 Ordinary Income
C.
Partner: Share of ,000; Partnership: ,000 Income
D.
Partner: ,000 GP; Partnership: ,000 Income
How to approach this question
Guaranteed Payments are like salary expenses for the partnership. Deduct them to get Net Income. Partner reports GP + Share of Net Income.
Full Answer
B.Partner: ,000 GP + share of income; Partnership: ,000 Ordinary Income✓ Correct
Partner: ,000 Guaranteed Payment + share of income; Partnership: ,000 Ordinary Income
Guaranteed payments are a deduction for the partnership in calculating ordinary business income. Partnership Income = ,000 - ,000 = ,000. The partner reports the ,000 GP plus their share of the ,000 income.
Common mistakes
Forgetting that the partnership gets to deduct the guaranteed payment.
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