Question

Jhumpa, Stewart, and Kelly are all one-third partners in the capital and profits of Firewalker General Partnership. In addition to their normal share of the partnership's annual income, Jhumpa and Stewart each receive an annual guarateed payment of $10,000 to compensate them for additional services they provide. Firewalker's income statement for the current year reflects the following revenues and expenses:

Sales revenue	$	340,000
Interest income		3,300
Long-term capital gains		1,200
Cost of goods sold		(120,000	)
Employee wages		(75,000	)
Depreciation expense		(28,000	)
Guaranteed payments		(20,000	)
Miscellaneous expenses		(4,500	)
Overall net income	$	97,000

(Leave no answer blank. Enter zero if applicable.)

a-1. How much ordinary business income (loss) would Firewalker report for the current year?

a-2. What separately stated items will it report on its return for the year?

Answer 1

The table below illustrates Firewalker’s ordinary business income and separately stated items. Note that the total self employment income for all partners consists of Firewalker’s $92,500 ordinary business income (because ordinary business income from a general partnership is always treated as self-employment income by the partners) plus the $20,000 in guaranteed payments made to Jhumpa and Stewart.

a-1.

Description	Total	Jhumpa	Stewart	Kelly
Sales Revenue	340,000
Less:
Cost of goods sold	(120,000)
Employee Wages	(75,000)
Depreciation Expense	(28,000)
Misc. Expenses	(4,500)
Guaranteed Payments	(20,000)
Ordinary Business Income	92,500	30,833	30,833	30,833

a-2.

Separately stated items on Schedule K-1	Total	Jhumpa	Stewart	Kelly
Interest Income	3,300	1,100	1,100	1,100
Long-term capital gains	1,200	400	400	400
Guaranteed Payments	20,000	10,000	10,000
Self-employment Income	112,500	40,833	40,833	40,833