\"Mike and Penelope are equal partners in MP partnership. The partnership, Mike,
ID: 2364949 • Letter: #
Question
"Mike and Penelope are equal partners in MP partnership. The partnership, Mike, and Penelope are calendar year taxpayers. The partnership incurred the following items in the current year:a. Sales $450,000
b. Cost of goods sold $210,000
c. Dividend on corporate investments $ 15,000
d. Tax-exempt interest income $ 4,000
e. Section 1245 gain (recapture)
on equipment sale $ 33,000
f. Section 1231 gain on equipment
sale $ 18,000
g. Long-term capital gain on stock
sale $ 12,000
h. Long-term capital loss on stock
sale $ 10,000
i. Short-term capital loss on stock
sale $ 9,000
j. Deprecition (no Sec. 179 or
bonus depreciation components) $ 27,000
k. Guaranteed payment to Pamela $ 30,000
l. Meals and entertainment expenses $ 11,600
m. Interest expense on loans
allocable to:
Business debt $ 42,000
Stock investments $ 9,200
Tax-exempt bonds $ 2,800
n. Principal payment on business
loan $ 14,000
o. Charitable contributions $ 5,000
p. Distributions to partners
($40,000 each) $ 80,000
1. Compute the partnership's ordinary income and separately stated items.
im having problems with part 1. can some1 help me understand?
Explanation / Answer
I believe ordinary income = (450K - 210K + 33K - 27K - 30K - (11,600/2) - 42K) = $168,200 ($84,100 each)
1231 is long-term. So:
Long-term gain = (18K + 12K - 10K) = $20,000
Short-term loss = $9,000
So, netting them we get a long-term gain of $11,000 ($5,500 each)
Distributions = $40,000 each
Guaranteed Payment = $30,000 (only for Pam)
Charitable Contributions = $2,500 each
Interest & Bonds(tax Exempt) = $3,400 each
Everything else does not affect income
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