Ariel,Bob,Candice and Dmitri are equal partners in a local ski resort.The resort reports the following items for the current year: Each partner receives a Schedule K-1 with one-fourth of the preceding items reported to him/her.How must each individual report these results on his/her Form 1040?
A) $100,000 income on Schedule E; $1,000 short-term capital gain on Schedule D
B) $112,500 income on Schedule E; $1,000 short-term capital gain on Schedule D
C) $300,000 income on Schedule E; $26,750 short-term capital gain on Schedule D
D) $1,200,000 income on Schedule E; $107,000 short-term capital gain on Schedule D

Question

Ariel,Bob,Candice and Dmitri are equal partners in a local ski resort.The resort reports the following items for the current year:  Each partner receives a Schedule K-1 with one-fourth of the preceding items reported to him/her.How must each individual report these results on his/her Form 1040?
A) $100,000 income on Schedule E; $1,000 short-term capital gain on Schedule D 
B) $112,500 income on Schedule E; $1,000 short-term capital gain on Schedule D 
C) $300,000 income on Schedule E; $26,750 short-term capital gain on Schedule D 
D) $1,200,000 income on Schedule E; $107,000 short-term capital gain on Schedule D

Quizplus · Accepted Answer

Since all partners are equal shareholders, each partner should report one-fourth of the income and expenses on their Schedule K-1. 
The total income reported by the partnership is $450,000 ($150,000 + $250,000 + $50,000). Each partner would report $112,500 ($450,000 ÷ 4) on their Schedule E. 
The short-term capital gain reported by the partnership is $4,000 ($1,000 + $2,000 + $1,000). Each partner would report $1,000 ($4,000 ÷ 4) on their Schedule D. 
Therefore, choice B is the correct answer as it matches the above calculations.

Ariel,Bob,Candice and Dmitri Are Equal Partners in a Local Ski