Question

Linda is a 50% partner in Deacon's Deli. She is to receive a guaranteed payment of $20,000. If the partnership's ordinary income before deducting the guaranteed payment is $70,000, what is Linda's distributive share of ordinary income?

$15,000 $20,000 $25,000 $35,000

Answer 1

Answer : Option c. $ 25,000

Linda's distributive share of ordinary income = Ordinary Income * 50%

= $ 50,000 * 50%

= $ 25,000

Thus, Linda's has $ 25,000 of distributive share of ordinary income.

Working Note:

Guaranteed payment to Linda is expense for Deacon's Deli ; Therefore it will be considered to calculated ordinary income.

Ordinary Income of Deacon's Deli = Ordinary Income before guaranteed payment - Guaranteed payment

= $ 70,000 - $ 20,000

= $ 50,000

Linda has 50% of partner in Deacon's Deli.

Thus Share of Ordinary income to Linda is 50% of operating Income.