Question 1

A partnership makes a guaranteed payment of $20,000 to a partner for services. The partnership has $50,000 of ordinary income before the guaranteed payment. What is the partnership's ordinary income after the payment?

Accepted Answer

1. Identify Payment: Guaranteed Payment for services.
2. Tax Treatment: Deductible by partnership (like salary expense) to arrive at ordinary business income.
3. Calculation: $50,000 - $20,000 = $30,000.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Treating guaranteed payments as a distribution of income rather than a deduction.

A partnership makes a guaranteed payment of $20,000 to a partner for services. The partnership has $50,000 of ordinary income before the guaranteed payment. What is the partnership's ordinary income after the payment?

How to approach this question

Full Answer

Common mistakes

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