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: $$\begin{array} { l r }
\text { Net income from operations (before guaranteed payment) } & \mathbf { \$ 9 0 , 0 0 0 } \
\text { Guaranteed payment to Clover } & \mathbf { 3 0 , 0 0 0 }
\end{array}$$ 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: $$\begin{array} { l r } 
\text { Net income from operations (before guaranteed payment) } & \mathbf { \$ 9 0 , 0 0 0 } \
\text { Guaranteed payment to Clover } & \mathbf { 3 0 , 0 0 0 }
\end{array}$$ What is Clover's share of the partnership's ordinary income and guaranteed payment?

Quizplus · Accepted Answer

Clover's share of the ordinary income is calculated after the guaranteed payment is deducted from the net income. The ordinary income is $60,000 ($90,000 - $30,000), and Clover's share is $20,000 ($60,000 / 3). The guaranteed payment is $30,000.

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