Question 1. [LO 4] The partnership agreement of the G&P general partnership states that Gary will receive a guaranteed payment of $13,000, and that Gary and Prudence will share the remaining profits or losses in a 45/55 ratio. For year 1, the G&P partnership reports the following results: Sales revenue $70,000 Gain on sale of land (§ 1231) $8,000 Cost of goods sold ($38,000) Depreciation – MACRS ($9,000) Employee wages ($14,000) Cash charitable contributions ($3,000) Municipal bond interest $2,000 Other expenses ($2,000) a. Compute Gary’s share of ordinary income (loss) and separately stated items to be reported on his year 1 Schedule K-1, including his self-employment income (loss). b. Compute Gary’s share of self-employment income (loss) to be reported on his year 1 Schedule K-1, assuming G&P is a limited partnership and Gary is a limited partner. c. What do you believe Gary’s share of self-employment income (loss) to be reported on his year 1 Schedule K-1 should be, assuming G&P is an LLC and Gary spends 2,000 hours per year working there full time? a. 2. [LO 4] {Research} Hoki Poki, a cash-method general partnership, recorded the following items for its current tax year: Rental real estate income $2,000 Sales revenue $70,000 §1245 recapture income $8,000 Interest income $2,000 Cost of goods sold ($38,000) Depreciation – MACRS ($9,000) Supplies expense ($1,000) Employee wages ($14,000) Investment interest expense ($1,000) Partner’s medical insurance premiums paid by Hoki Poki ($3,000) As part of preparing Hoki Poki’s current year return, identify the items that should be included in computing its ordinary business income (loss) and those that should be separately stated. {Hint:See Schedule K-1 and related preparer’s instructions at www.irs.gov.} Hoki Poki’s ordinary business income is computed as follows:

1. [LO 4] The partnership agreement of the G&P general partnership states that Gary will receive a guaranteed payment of $13,000, and that Gary and Prudence will share the remaining profits or losses in a 45/55 ratio. For year 1, the G&P partnership reports the following results:

Sales revenue $70,000

Gain on sale of land (§ 1231) $8,000

Cost of goods sold ($38,000)

Depreciation – MACRS ($9,000)

Employee wages ($14,000)

Cash charitable contributions ($3,000)

Municipal bond interest $2,000

Other expenses ($2,000)

a. Compute Gary’s share of ordinary income (loss) and separately stated items to be reported on his year 1 Schedule K-1, including his self-employment income (loss).

b. Compute Gary’s share of self-employment income (loss) to be reported on his year 1 Schedule K-1, assuming G&P is a limited partnership and Gary is a limited partner.

c. What do you believe Gary’s share of self-employment income (loss) to be reported on his year 1 Schedule K-1 should be, assuming G&P is an LLC and Gary spends 2,000 hours per year working there full time?

a.

2. [LO 4] {Research} Hoki Poki, a cash-method general partnership, recorded the following items for its current tax year:

Rental real estate income $2,000

Sales revenue $70,000

§1245 recapture income $8,000

Interest income $2,000

Cost of goods sold ($38,000)

Depreciation – MACRS ($9,000)

Supplies expense ($1,000)

Employee wages ($14,000)

Investment interest expense ($1,000)

Partner’s medical insurance premiums paid by Hoki Poki ($3,000)

As part of preparing Hoki Poki’s current year return, identify the items that should be included in computing its ordinary business income (loss) and those that should be separately stated. {Hint:See Schedule K-1 and related preparer’s instructions at www.irs.gov.}

Hoki Poki’s ordinary business income is computed as follows:

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