Question

The partnership agreement of the G&P general partnership states that Gary will receive a guaranteed payment of $13,000, and that Gary and Prudence will share the remaining profits or losses in a 45/55 ratio. For year 1, the G&P partnership reports the following results:

Sales revenue	$	70,000
Gain on sale of land (§1231)	$	8,000
Cost of goods sold	$	(38,000	)
Depreciation—MACRS	$	(9,000	)
Employee wages	$	(14,000	)
Cash charitable contributions	$	(3,000	)
Municipal bond interest	$	2,000
Other expenses	$	(2,000	)

(Negative amounts should be indicated by a minus sign.)

a-1. How much ordinary income (loss) is allocated to Gary for the year?

a-2. Compute Gary's share of separately stated items to be reported on his year 1 Schedule K-1, including his self-employment income (loss).

Answer 1

Ans-a-1- If Gary is a limited partnet,then his self-employment income would equal the $13,000 guaranteed payment he received.

Ans-a-2-

Gary's Ordinary business income, seperately stated items and self employment income are calculated as follow:

Description	Total Amount	Allocated to Gary	Explanation
Sales Revenue	$70,000
Less:
Cost of goods sold	(38,000)
Depreciation- MACRS	(9,000)
Employee wages	(14,000)
Other expenses	(2,000)
Guaranteed payments	(13,000)
Ordinary Business Loss	($6,000)	($2,700)	45% allocation to Gary
Seperately Stated Items on Schedule K-1:-
Section 1231 gains	$8,000	$3,600	45% allocation to Gary
Cash chartitable contributions	($3,000)	($1,350)	45% allocation to Gary
Guaranteed payment	$13,000	$13,000	Gary's guaranteed payment
Municipal bond interest	$2,000	$900	45% allocation to Gary
Self-employment Income	$7,000 ($13,000 guaranteed payment-$6,000 ordinary loss)	$10,300	($2,700) ordinary business loss allocated to Gary+ $13,000 guaranteed payment