Question

Roger, Ellen, Drew and Cindy are equal partners in a local pub. The pub reports the following items for the current year: Business revenue$1,770,000Business expenses 1,000,000Investment expenses 160,000Each partner receives a Schedule K-1 with one-fourth of the preceding items reported to him/her. How must each individual report these results on his/her Form 1040?

A. $770,000 on Schedule E; $160,000 on Schedule A.
B. $385,000 on Schedule E; $40,000 on Schedule A.
C. $257,667 on Schedule E; $40,000 on Schedule A.
D. $192,500 on Schedule E; $40,000 on Schedule A.

Answer 1

Answer: D-$192,500 on Schedule E; $40,000 on Schedule A.

Explanation: The pub reports the following items for the current year:

Business revenue : $1,770,000

less:

Business expenses $1,000,000

Profit for the year $770,000

divided by 4= $770,000/4 = $192,500 will be recorded on schedule E by each partner.

Investment expenses will be reported under schedule A as $160,000/4 = $40,000 by each of them