Question

Amy and Mary are each partners in a partnership (A&M Partnership). According to their partnership agreement, all income is to be allocated equally between them, but in no chase shall the allocation to Amy be less than $75,000 per year (i.e. Amy’s receives a minimum guaranteed payment of $75,000 each year). This year A&M generated $107,200 net profit.

Compute A&M’s taxable income for the year and each partner’s distributive share of that income.

Please show work!!

Answer 1

Total Profit = 107,200

Amy= 75,000

Mary=32,200

Explanation

50% of total profit belongs to Amy and 50% belongs to Mary.However Amy's 50% share should not be less that 75000.

Amy's 50% profit share = 107200*.5 = 53600. However Amy is guaranteed with a minimum profit of 75000. Therefore Amy will receive $75000 even though her 50%(53600) share is less than $75000.

Therefore Mary will not alocated with entire 50% share since only 32,200 profit is leftover. Therefore only 32200 will be allocated to Mary.