ExpertEasy1 markMultiple Choice
CPA · Question 46 · Area 3: Entity Tax Compliance
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?
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?
Answer options:
A.
$50,000
B.
$30,000
C.
$70,000
D.
$20,000
How to approach this question
1. Identify Payment: Guaranteed Payment for services.<br/>2. Tax Treatment: Deductible by partnership (like salary expense) to arrive at ordinary business income.<br/>3. Calculation: $50,000 - $20,000 = $30,000.
Full Answer
B.$30,000✓ Correct
B
The guaranteed payment is an expense to the partnership. Ordinary income = $50,000 - $20,000 = $30,000.
Common mistakes
Treating guaranteed payments as a distribution of income rather than a deduction.
Practice the full CPA TCP Practice Exam
68 questions · hints · full answers · grading
More questions from this exam
Q01An individual taxpayer, filing single, exercised 1,000 Incentive Stock Options (ISOs) in Year 1 w...HardQ02A taxpayer has the following income and losses for Year 1:<br/>- Salary: $200,000<br/>- Interest ...HardQ03In Year 1, a taxpayer donates a piece of artwork to a public charity (50% limit organization). Th...HardQ04A taxpayer has $10,000 of investment interest expense in Year 1. They have the following income i...MediumQ05A single taxpayer has the following financial profile for Year 1:<br/>- Wages: $180,000<br/>- Net...Medium