Question

2018 Tax Year

Abe, Sam & Larry formed the ASL Partnership, agreeing to share profits and losses equally. Larry will manage the business for which he will receive a guaranteed payment of $30,000 per year. Cash receipts and disbursements for the year were as follows:

Net income from operations (before guaranteed payment) $ 90,000

Guaranteed payment to Larry 30,000

What is Larry’s share of the partnership’s ordinary income and guaranteed payment?

Select one:

a. Ordinary income, $30,000; Guaranteed payment, $10,000

b. Ordinary income, $20,000; Guaranteed payment, $10,000

c. Ordinary income, $30,000; Guaranteed payment, $30,000

d. Ordinary income, $20,000; Guaranteed payment, $30,000

Answer 1

Answer:

Given, Partner ship ratio = Equally   =   1 : 1 : 1               Each Partner Share   = 1 / 3

Guaranteed payment   = $30,000

Ordinary Income = Net Income (-) Guaranteed payment                                     =    $90,000 (-) $30,000                                     =     $60,000

Larry’s share in Ordinary Income = $60,000 x 1 / 3                                                                     =   $20,000

Ordinary Income = 20,000 ; Guaranteed payment   = $30,000

Option (d) is correct

d. Ordinary income, $20,000; Guaranteed payment, $30,000