Question

Kim received a one-third profits and capital interest in Bright Line, LLC, in exchange for legal services she provided. In addition to her share of partnership profits or losses, she receives a $20,000 guaranteed payment each year for ongoing services she provides to the LLC. For X4, Bright Line reported the following revenues and expenses: sales—$140,000, cost of goods sold—$80,000, depreciation expense—$46,000, long-term capital gains—$5,000, qualified dividends—$5,000, and municipal bond interest—$3,000.

How much ordinary business income (loss) will Bright Line allocate to Kim on her Schedule K-1 for X4?

Answer 1

Bright Line, LLC will allocate $14,000 of ordinary business income to Kim on her Schedule K-1 for X4.

Step-by-step explanation:

To calculate the ordinary business income (loss) allocated to Kim on her Schedule K-1 for X4, we need to consider the revenues and expenses of Bright Line, LLC. From the given information, we know that the revenues were $140,000 and the expenses were: cost of goods sold—$80,000, depreciation expense—$46,000, long-term capital gains—$5,000, qualified dividends—$5,000, and municipal bond interest—$3,000.

To calculate the ordinary business income, we subtract the expenses (excluding long-term capital gains, qualified dividends, and municipal bond interest) from the revenues:

Ordinary business income = Revenues - Expenses

= $140,000 - ($80,000 + $46,000)

= $140,000 - $126,000

= $14,000

Therefore, Bright Line will allocate $14,000 of ordinary business income to Kim on her Schedule K-1 for X4.