Joe, Frank, and Kate form an equal partnership and Joe proceeds to rent property

Question

Joe, Frank, and Kate form an equal partnership and Joe proceeds to rent property to it. The partnership is an accrual basis taxpayer, Joe is a cash basis taxpayer, and both the partnership and Joe use a calendar based taxable year. Prior to deducting any expense for rent, the partnership has ordinary income of $12,000 in its first year.  How much income is recognized by the partners for the first year should the partnership accrue $3,000 of rental expense payable to Joe at year end?

Each partner recognizes $3,000 of income from the partnership. Partner A also recognizes $3,000 of rental income.

Each partner recognizes $4,000 of income from the partnership. Joe recognizes no rental income until it is paid by the partnership.

Frank and Kate recognize $3,000 of ordinary income. Joe recognizes $6,000 of ordinary income, $3,000 of which is considered a guaranteed payment to Joe.

Each partner recognizes $3,000 of income from the partnership. Joe also recognizes $3,000 of rental income, but not until it is paid.

Each partner recognizes $3,000 of income from the partnership. Partner A also recognizes $3,000 of rental income.

Each partner recognizes $4,000 of income from the partnership. Joe recognizes no rental income until it is paid by the partnership.

Frank and Kate recognize $3,000 of ordinary income. Joe recognizes $6,000 of ordinary income, $3,000 of which is considered a guaranteed payment to Joe.

Each partner recognizes $3,000 of income from the partnership. Joe also recognizes $3,000 of rental income, but not until it is paid.

Explanation / Answer

The Answer is "B'

B. Each parther recognizes $4000 of income from the Partnership. Joe recognizes no rental income until

it is paid by the partnership.

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