George Received a Fully Vested 10% Interest in Partnership Capital

question 60

True/False

George received a fully vested 10% interest in partnership capital and a 20% interest in future partnership profits in exchange for services rendered to the GHP, LLC (not a publicly traded partnership interest). The future profits of the partnership are subject to normal operating risks. George will report ordinary income equal to the fair market value of the profits interest, but the capital interest will not be currently taxed to him.

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Definitions:

Cash Dividends

Cash dividends are payments made by a corporation to its shareholders, representing a distribution of the company's earnings.

Balance Sheet

A financial outline that displays a company's assets, financial obligations, and the ownership interest of shareholders at a determined date.

Net Income

The total profit of a company after subtracting all expenses, taxes, and costs from total revenue.

Financing Activities

Activities that result in changes in the size and composition of the equity capital and borrowings of an entity, including issuing debt, equity, and paying dividends.