Question 1

At the end of year 1, Tony had a tax basis of $40,000 in Tall Ladders, Limited Partnership. Tony has a 20 percent profits interest in Tall Ladders. For year 2, Tall Ladders will pay Tony a $10,000guaranteed payment for extra services he provides to the partnership. Given the following IncomeStatement and Balance Sheet from Tall Ladders, what is Tony's adjusted tax basis at the end of year 2?

Accepted Answer

The answer of At the end of year 1, Tony...

Question 2

On January 1, 20X9, Mr. Blue and Mr. Grey each contributed $100,000 to form the B&G general partnership. Their partnership agreement states that they will each receive a 50% profits and loss interest. The partnership agreement also provides that Mr. Blue will receive an annual $36,000guaranteed payment. B&G began business on January 1, 20X9. For its first taxable year, its accounting records contained the following information.  The $3,000 of interest was paid on a $60,000 loan made to B&G by Key Bank on June 30, 20X9. B&G repaid$10,000 of the loan on December 15, 20X9. Neither of the partners received a cash distribution from B&G in20X9.Complete the following table related to Mr. Blue's interest in B&G partnership:

Accepted Answer

The answer of On January 1, 20X9, Mr. Blue and...

Question 3

On April 18, 20X8, Robert sold his 35 percent partnership interest in Fruit Wonder, LLC to Richard for $120,000. Prior to selling his interest, Robert had a basis in Fruit Wonder of $80,000. Robert's basis included $5,000 of recourse debt and $15,000 of nonrecourse debt that had been allocated to him. Immediately after the purchase, what is Richard's tax basis in Fruit Wonder?

Accepted Answer

The answer of On April 18, 20X8, Robert sold his...

Question 4

On June 12, 20X9, Kevin, Chris, and Candy Corp. came together to form Scrumptious Sweets General Partnership. Now, Scrumptious Sweets must decide which tax year-end to use. Kevin and Chris have calendar year-ends and each holds a 35% profits and capital interest. However, Candy Corp. has a September 30th year-end and holds the remaining 30% profits and capital interest. What tax year-end must Scrumptious Sweets adopt and what rule mandates this year-end?

Accepted Answer

The answer of On June 12, 20X9, Kevin, Chris, and...

Question 5

J&J, LLC was in its third year of operations when J&J decided to expand the number of members from two, A & B, with equal profits and capital interests to three members, A, B, and C. The third member, C, will contribute her financial expertise to the LLC in exchange for a 1/3 capital interestin J&J. Given the balance sheet below reflecting the financial position of J&J on the date member C is admitted, what are the tax consequences to members A, B, and C, and to J&J when C receives her capitalinterest? If, instead, member C receives a 1/3 profit interest, what would be the tax consequences to membersA, B, and C, and to J&J?

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Question 6

Lloyd and Harry, equal partners, form the Ant World Partnership. During the year, Ant World had the followin revenue, expenses, gains, losses, and distributions:  Given these items, what amount of ordinary business income (loss) and what separately-stated items should be allocated to each partner for the year?

Accepted Answer

The answer of Lloyd and Harry, equal partners, form the...

Question 7

Clint noticed that the Schedule K-1 he just received from ABC Partnership included a $20,000 ordinary business loss allocation. His tax basis in ABC at the beginning of ABC's most recent tax year was $10,000. Comparing the Schedule K-1 he recently received from ABC with the Schedule K-1 he received from ABC last year, Clint noted that his share of ABC partnership debt changed asfollows: recourse debt increased from $0 to $2,000, qualified nonrecourse debt increased from $0 to $3,000, and nonrecourse debt increased from $0 to $3,000. Finally, the Schedule K-1 Clint recently received from ABC reflected a $1,000 cash contribution he made to ABC during the year.Clint is not a material participant in ABC partnership, and he received $10,000 of passive income from another investment during the same year he received the loss allocation from ABC. How much of the $20,000 loss from ABC can Clint deduct currently, and how much of the loss is suspended because of the tax basis, the at-risk, and the passive activity loss limitations?

Accepted Answer

The answer of Clint noticed that the Schedule K-1 he...

Question 8

Greg, a 40% partner in GSS Partnership, contributed land to the partnership in exchange for hispartnership interest when the partnership was formed. At the time, his basis in the land was $30,000 and its FMV was $133,000. Three years after the partnership was formed, GSS Partnership decided to sell the land to an unrelated party for $150,000. When the land is sold, how much of the gainshould be allocated to each partner of GSS Partnership if Sam and Steve are each 30% partners?

Accepted Answer

The answer of Greg, a 40% partner in GSS Partnership,...

Question 9

Illuminating Light Partnership had the following revenues, expenses, gains, losses, and distributions:  Given these items, what is Illuminating Light's ordinary business income (loss) for the year?

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Question 10

Explain why partners must increase their tax basis for their share of partnership taxable and nontaxable income or gain and reduce their basis by their share of partnership deductible and nondeductible expenses or losses?

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The answer of Explain why partners must increase their tax...

Question 11

Jordan, Inc., Bird, Inc., Ewing, Inc., and Barkley, Inc. formed Nothing-But-Net Partnership on June1st, 20X9. Now, Nothing-But-Net must adopt its required tax year-end. The partners' year-ends, profitsinterests, and capital interests are reflected in the table below. Given this information, what tax year-end mustNothing-But-Net use and what rule requires this year-end?

Accepted Answer

The answer of Jordan, Inc., Bird, Inc., Ewing, Inc., and...

Question 12

This year, Reggie's distributive share from Almonte Partnership includes $8,000 of interest income, $4,000 of dividend income, and $60,000 ordinary business income.A. Assume that Reggie materially participates in the partnership. How much of his distributive share fromAlmonte Partnership is potentially subject to the Medicare contribution tax?B. Assume that Reggie does not materially participate in the partnership. How much of his distributive share from Almonte Partnership is potentially subject to the Medicare contribution tax?

Accepted Answer

The answer of This year, Reggie's distributive share from Almonte...

Question 13

KBL, Inc., AGW, Inc., Blaster, Inc., Shiny Shoes, Inc., and a group of 24 individuals form Shoes Galore General Partnership on October 11, 20X9. Now, Shoes Galore must adopt its required tax year-end. The partners' year-ends, profits interests, and capital interests are reflected in the table below. Given this information, what tax year-end must Shoes Galore use and what rule requires this year-end?

Accepted Answer

The answer of KBL, Inc., AGW, Inc., Blaster, Inc., Shiny...

Question 14

Lincoln, Inc., Washington, Inc., and Adams, Inc. form Presidential Suites Partnership on February15, 20X9. Now, Presidential Suites must adopt its required tax year-end. The partners' year-ends, profits interests, and capital interests are reflected in the table below. Given this information, what tax year-end must Presidential Suites use and what rule requires this year-end?

Accepted Answer

The answer of Lincoln, Inc., Washington, Inc., and Adams, Inc....

Question 15

What general accounting methods may be used by a partnership and how and by whom are they selected?

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The answer of What general accounting methods may be used...

Question 16

In each of the independent scenarios below, how does the partner or partnership determine its holding period in the property received?a. A partner contributes property in exchange for a partnership interest b. The partnership receives contributed propertyc. A partner contributes services in exchange for a partnership interest d. A partner purchases a partnership interest from an existing partner

Accepted Answer

The answer of In each of the independent scenarios below,...

Question 17

Ruby's tax basis in her partnership interest at the beginning of the partnership's tax year was $13,000. The following items were included in her Schedule K-1 from the partnership for the year:  Determine what amounts related to these items Ruby will report on her tax return assuming her tax basis and at risk amount are equal and that she is a material participant in the partnership's activities.

Accepted Answer

The answer of Ruby's tax basis in her partnership interest...

Question 18

Alfred, a one-third profits and capital partner in Pizzeria Partnership needs help in adjusting his tax basis to reflect the information contained in his most recent Schedule K-1 from the partnership. Unfortunately, the Schedule K-1 he recently received was for year 3 of the partnership, but Alfredonly knows that his tax basis at the beginning of year 2 of the partnership was $23,000. Thankfully, Alfred still has his Schedule K-1 from the partnership for years 1 and 2.Using the following information from Alfred's year 1, year 2, and year 3 Schedule K-1, calculate his tax basis the end of year 2 and year 3.

Accepted Answer

The answer of Alfred, a one-third profits and capital partner...

Question 19

Why are guaranteed payments deducted in calculating the ordinary business income (loss) of partnerships and treated as a separately-stated item for the partners that receive the payment?

Accepted Answer

The answer of Why are guaranteed payments deducted in calculating...

Question 20

ER General Partnership, a medical supplies business, states in its partnership agreement that Erin and Ryan agree to split profits and losses according to a 40/60 ratio. Additionally, the partnership will provide Erin with a $15,000 guaranteed payment for services she provides to the partnership.ER Partnership reports the following revenues, expenses, gains, losses, and distributions for its current taxable year:  *The Land is a Section 1231 assetGiven these items, answer the following questions:A. Compute Erin's share of ordinary income (loss) and separately-stated items. Include her self-employment income as a separately-stated item.B. Compute Erin's self-employment income, except assume ER Partnership is a limited partnership and Erin is a limited partner.C. Compute Erin's self-employment income, except assume ER Partnership is an LLC and Erin ispersonally liable for half of the debt of the LLC. Apply the IRS's proposed regulations in formulating your answer.

Accepted Answer

The answer of ER General Partnership, a medical supplies business,...

Quiz 20: Forming and Operating Partnerships

Illuminating Light Partnership had the following revenues, expenses, gains, losses, and distributions: Given these items, what is Illuminating Light's ordinary business income (loss) for the year?

Explain why partners must increase their tax basis for their share of partnership taxable and nontaxable income or gain and reduce their basis by their share of partnership deductible and nondeductible expenses or losses?

What general accounting methods may be used by a partnership and how and by whom are they selected?

Why are guaranteed payments deducted in calculating the ordinary business income (loss) of partnerships and treated as a separately-stated item for the partners that receive the payment?