Hay, Straw and Clover formed the HSC Partnership, agreeing to share profits and losses equally. Clover will manage the business for which he will receive a guaranteed payment of $30,000 per year. Cash receipts and disbursements for the year were as follows $\begin{array}{lr}
\text { Net income from operations (before guaranteed payment) }&\$90,000\
\text {Guaranteed payment to Clover }&30,000\
\end{array}$
What is Clover's share of the partnership's ordinary income and guaranteed payment?

Question

Hay, Straw and Clover formed the HSC Partnership, agreeing to share profits and losses equally. Clover will manage the business for which he will receive a guaranteed payment of $30,000 per year. Cash receipts and disbursements for the year were as follows $\begin{array}{lr}
\text { Net income from operations (before guaranteed payment) }&\$90,000\
\text {Guaranteed payment to Clover }&30,000\
\end{array}$
 What is Clover's share of the partnership's ordinary income and guaranteed payment?

Quizplus · Accepted Answer

First, subtract the guaranteed payment to Clover ($30,000) from the net income before guaranteed payment ($90,000) to get $60,000. This amount is then divided equally among the three partners, giving each $20,000 as their share of the ordinary income. Clover also receives the guaranteed payment of $30,000, making his total $50,000, but the question specifically asks for the split between ordinary income and guaranteed payment, which are $20,000 and $30,000, respectively.

Hay, Straw and Clover Formed the HSC Partnership, Agreeing to Share