Question

Jhumpa, Stewart, and Kelly are all one-third partners in the capital and profits of Firewalker general partnership. In addition to their normal share of the partnership’s annual income, Jhumpa and Stewart receive an annual guaranteed payment of $10,000 to compensate them for additional services they provide. Firewalker’s income statement for the current year reflects the following revenues and expenses:

Sales revenue                                      $337,500

Interest income                                         3,300

Long-term capital gains                           1,200

Cost of goods sold                                (123,000)

Employee wages                                   (75,000)

Depreciation expense                            (28,000)

Guaranteed payments                            (20,000)

Miscellaneous expenses                         (4,500)

How much self-employment income will Jhumpa report?

Answer 1

Statement showing Self-employment income of Jhumpa

1. One Third profit from Firewalker General Partnership (see working note below) $ 27167

2. Compensation for Additional service from Firewalker General Partnership(10000/2) $ 5000

Total self employment income of Jhumba $ 32167

Working Note:

Computation of Profit from Firewalker General Partnership: (currencies in $)

Sales Revenue 337500

Interest Income 3300

Long term capital gains 1200

Less Cost of goods sold -123000

Less Employee wages -75000

Less Depreciation Expenses -28000

Less Guaranteed payments -20000

Less Miscellaneous Expenses -4000

Less Compensation to 2 partners for

Additional services    -10000

Net Profit 81500

One Third share of profit 27167