Kristie is a 30% partner in the KKM Partnership.During the current year,KKM reported gross receipts of $280,000 and a charitable contribution of $30,000.The partnership paid office expenses of $80,000.In addition,KKM distributed $20,000 each to partners Kaylyn and Megan,and the partnership paid partner Kaylyn $20,000 for administrative services.Kristie reports the following income from KKM during the current tax year:
A)$54,000 ordinary income; $9,000 charitable contribution.
B)$60,000 ordinary income; $9,000 charitable contribution.
C)$36,000 ordinary income.
D)$54,000 ordinary income.

Question

Quizplus · Accepted Answer

To calculate Kristie's income from KKM, we need to start with the partnership's gross receipts of $280,000 and subtract the charitable contribution of $30,000 and the office expenses of $80,000, which leaves us with $170,000. 
Next, we need to calculate Kristie's share of this income as a 30% partner, which is $51,000 (30% of $170,000). 
However, we also need to add back in her share of the charitable contribution, which is $9,000 (30% of $30,000). 
This brings us to ordinary income of $60,000 (which is not one of the choices). 
But we haven't taken into account the distributions and administrative services yet. Kristie's share of the distributions is 30% of $20,000, or $6,000. This leaves $14,000 of distributions for the other partners. 
Finally, we need to subtract the $20,000 paid to Kaylyn for administrative services from Kristie's income. This leaves us with $40,000 of ordinary income for Kristie. 
So the closest answer choice is A, which has the correct amount of charitable contribution but a slightly different amount of ordinary income.

Kristie Is a 30% Partner in the KKM Partnership