Kim Received a One-Third Profits and Capital Interest in Bright

question 102

Multiple Choice

Kim received a one-third profits and capital interest in Bright Line, LLC, in exchange for legal services she provided. In addition to her share of partnership profits or losses, she receives a $23,000 guaranteed payment each year for ongoing services she provides to the LLC. For X4, Bright Line reported the following revenues and expenses: sales-$143,000, cost of goods sold-$83,000, depreciation expense-$40,000, long-term capital gains-$8,000, qualified dividends-$5,300, and municipal Bond interest-$3,300. How much ordinary business income (loss) will Bright Line allocate to Kim on her Schedule K-1 for X4?

• A)($13,000)
• B)$6,000
• C)$8,000
• D)$13,000
• E)None of the choices will be reported as ordinary business income (loss)on Schedule K-1.

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Definitions:

Good Faith

A principle denoting honesty and sincerity of intention without any intent to deceive or defraud.

Fiduciary Duty

This is a legal obligation of one party to act in the best interest of another when entrusted with care of money, property, or confidential information.

Madoff's Ponzi Scheme

A massive fraudulent investment operation masterminded by Bernard Madoff, where returns to investors were paid from their own money or the money of new investors, rather than from profit earned.

Proper Name

A specific reference to a unique individual, place, or thing, typically starting with a capital letter and used to give identity.