Hay, Straw and Clover formed the ZIP Partnership, agreeing to share profits and

Question

Hay, Straw and Clover formed the ZIP Partnership, agreeing to share profits and losses equally – each will receive 1/3 after allocating a guaranteed payment of $30,000 per year to Clover to manage the shop. Information for the year was as follows: Net income from operations (before guaranteed payment to Clover) is $150,000; guaranteed payment to Clover 30,000. Use this information to answer questions 11 & 12.

What is Clover's share of the partnership's ordinary income and guaranteed payment?

ordinary income: $40,000; guaranteed payments: $10,000

ordinary income: $50,000; guaranteed payments: $10,000

ordinary income: $40,000; guaranteed payments: $30,000

ordinary income: $50,000; guaranteed payments: $30,000

ordinary income: $40,000; guaranteed payments: $10,000

ordinary income: $50,000; guaranteed payments: $10,000

ordinary income: $40,000; guaranteed payments: $30,000

ordinary income: $50,000; guaranteed payments: $30,000

Explanation / Answer

Ordinary Payment = $ 40,000 ; Guaranteed Payment = $ 30,000

Ordinary Payment = $ 150,000 - $ 30,000 = $ 120,000

Clover's Share = $ 120,000 X 1/3 = $ 40,000

Guaranteed Payment = $ 30,000 ( given )

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