Kim received a one-third profits and capital interest in Bright Line, LLC, in exchange for legal services she provided. In addition to her share of partnership profits or losses, she receives a $30,000 guaranteed payment each year for ongoing services she provides to the LLC. For X4, Bright Line reported the following revenues and expenses: sales-$150,000, cost of goods sold-$90,000, depreciation expense-$45,000, long-term capital gains-$15,000, qualified dividends-$6,000, and municipal bond interest-$3,000. How much ordinary business income (loss)will Bright Line allocate to Kim on her Schedule K-1 for X4?
A)($15,000)
B)$6,000
C)$9,000
D)$15,000
E)None of the choices will be reported as ordinary business income (loss)on Schedule K-1.

Question

Quizplus · Accepted Answer

To calculate the ordinary business income (loss) allocated to Kim on her Schedule K-1, we first need to determine Bright Line's ordinary business income. This is calculated by subtracting the business expenses from the business revenues. Here, the relevant figures are sales ($150,000) minus cost of goods sold ($90,000) and depreciation expense ($45,000), which equals $15,000 of ordinary business income. However, long-term capital gains, qualified dividends, and municipal bond interest are not considered ordinary business income; they are separately stated items. Since Kim's share is one-third, her portion of the ordinary business income would be $5,000 (one-third of $15,000), but this does not match any of the options provided because the guaranteed payment of $30,000 for services is not part of the ordinary business income calculation for the Schedule K-1; it is reported separately. Therefore, none of the choices correctly represent the ordinary business income (loss) that will be reported on Schedule K-1 for Kim.

Kim Received a One-Third Profits and Capital Interest in Bright