- This topic has 8 replies, 4 voices, and was last updated 9 years, 8 months ago by .
-
Topic
-
Hi all, I believe that there is an error with the following Wiley REG question. I would appreciate your thoughts on this. Here it is:
Gilroy, a calendar-year taxpayer, is a partner in the firm of Adams and Company which has a fiscal year ending June 30. The partnership agreement provides for Gilroy to receive 25% of the ordinary income of the partnership. Gilroy also receives a guaranteed payment of $1,000 monthly which is deductible by the partnership. The partnership reported ordinary income of $88,000 for the year ended June 30, 2011, and $132,000 for the year ended June 30, 2012. How much should Gilroy report on his 2011 return as total income from the partnership.
a. $25,000
b. $30,000
c. $34,000
d. $39,000
The correct answer is apparantly “C”. I disagree, here’s why:
The problem states that Gilroy receives a “guaranteed payment monthly of $1,000 that is DEDUCTIBLE BY THE PARTNERSHIP”. In other problems that include “guaranteed payments”, the guaranteed payments are deducted from the partnerships income first, before the distributions are computed. My opinion is that the answer should be $31,000. For example:
$88,000 – $12,000 guaranteed payment = $76,000.
$76,000 * 25% = $19,000
Gilroy’s share = $19,000 + $12,000 = $31,000
Therefore I contend that the correct answer is $31,000 and NOT any of the answer choices provided by Wiley.
I could be wrong, but in similar problems, guaranteed partner payments are deducted from ordinary income before each partners share is computed.
Any thoughts on this?…
- You must be logged in to reply to this topic.