Question

Bonnie and George are equal general partners in BG Partnership. Bonnie receives a $4,000 monthly guaranteed payment for services. This year, BG generated $95,000 profit (before consideration of Bonnie’s guaranteed payments).a. Compute each partner’s distributive share of ordinary business income.b. Compute each partner’s self-employment income.c. How would your answers change if BG’s profit was only $32,000 instead of $95,000? (Losses should be indicated by a minus sign.)

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Answer 2

a. Bonnie Share is $23,500

George Share is $23,500

b. Partner's Self Employment Business Income for Bonnie is $71,500 and for George is $23,500.

c. Partner's Self Employment Business Income change to $40,000 for Bonnie and to -$8,000 for George.

Step-by-step explanation:

a.

Income of BG Partnership before any Guarantee 95,000

Guarantee Payment - Bonnie - $4000 X 12 (48,000)

Ordinary Business Income 47,000

Bonnie Share = 47,000*50%

= 23,500

George Share = 47,000*50%

= 23,500

b.

Bonnie George

Ordinary Business Income 23,500 23,500

Gurantee Payment Recd 48,000 -

Partner's Self Employment Business Income 71,500 23,500

c.

Income of BG Partnership before any Guarantee 32,000

Guarantee Payment - Bonnie [$4000*12] (48,000)

Ordinary Business Income (16,000)

Bonnie Share = -16,000*50%

= -8,000

George Share = -16,000*50%

= -8,000

Bonnie George

Ordinary Business Income (8,000) (8,000)

Add: Gurantee Payment Recd 48,000 -

Partner's Self Employment Business Income 40,000 (8,000)