Question 1

In the current year, Derek formed an equal partnership with Cody. Derek contributed land with an adjusted basis of
$110,000 and a fair market value of $200,000. Derek also contributed $50,000 cash to the partnership. Cody contributed land with an adjusted basis of $80,000 and a fair market value of $230,000. The land contributed by Derek was encumbered by a $60,000 nonrecourse debt. The land contributed by Cody was encumbered by $40,000 of nonrecourse debt. Assume that the partners share debt equally. Immediately after the formation, what is the basis of Cody's partnership interest?

Accepted Answer

The answer of In the current year, Derek formed an...

Question 2

Melissa is a partner in a continuing partnership. At the end of the current year, the partnership makes a
proportionate, current (nonliquidating) distribution to Melissa of $50,000 cash, inventory (basis of $22,000, fair market value of $20,000), and land (basis of $30,000, fair market value of $60,000). Melissa's basis in the partnership
interest was $90,000 before the distribution. What is Melissa's basis in the inventory, land, and partnership interest following the distribution? Show your calculations.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Melissa's basis in the inventory equals...

Question 3

Xena and Xavier form the XX LLC. Xena contributes cash of $20,000, land (basis = $40,000; fair market value = $25,000) , equipment (basis = $0; fair market value = $35,000) , and inventory (basis = $30,000; fair market value =
$40,000) . Xavier contributed $120,000 of cash. How much is the partnership's basis in the land, equipment, and inventory, and how much is Xena's basis in the partnership interest?

Accepted Answer

A)   $25,000 land, $0 equipment, $30,000 inventory; $55,000 partnership interest.
B)   $40,000 land, $0 equipment, $30,000 inventory; $90,000 partnership interest.
C)   $25,000 land, $35,000 equipment, $30,000 inventory; $105,000 partnership interest.
D)   $40,000 land, $35,000 equipment, $40,000 inventory; $135,000 partnership interest.E) B) and C)
F) None of the above

Question 4

In a limited liability company, all members may participate in management (the operating agreement cannot limit participation), and all entity debts are treated as nonrecourse liabilities for purposes of allocating the LLC's liabilities to basis.

Accepted Answer

A) True 
 B)False

Question 5

Suzy owns a 30% interest in the JSD LLC. In liquidation of the entity, Suzy receives a proportionate distribution of $30,000 cash, inventory (basis of $16,000, fair market value of $18,000) , and land (basis of $25,000, fair market value of $30,000) . Suzy's basis in the entity immediately before the distribution was $80,000. As a result of the distribution, what is Suzy's basis in the inventory and land, and how much gain or loss does she recognize?

Accepted Answer

A)   $0 basis in inventory; $25,000 basis in land; $0 gain or loss.
B)   $16,000 basis in inventory; $34,000 basis in land; $0 gain or loss.
C)   $16,000 basis in inventory; $25,000 basis in land; $9,000 loss.
D)   $18,000 basis in inventory; $32,000 basis in land; $0 gain or loss.
E)   $16,000 basis in inventory; $25,000 basis in land; $39,000 loss..F) C) and D)
G) C) and E)

Question 6

Which of the following distributions would never result in gain recognition to the recipient (distributee)  partner?

Accepted Answer

A)   A distribution of cash that follows a contribution of appreciated property to the partnership.
B)   A distribution of a slightly appreciated marketable security.
C)   A distribution of property to a partner who, three years ago, contributed other property with a built-in gain.
D)   A distribution to a second partner of property contributed by the first partner two years ago.
E)   A distribution of inventory property that is proportionate to the partners.F) None of the above
G) C) and E)

Question 7

At the beginning of the year, Heather's tax basis capital account balance in the HEP Partnership was $85,000. During the tax year, Heather contributed property with a basis of $6,000 and a fair market value of $10,000. Her share of the partnership's ordinary income and separately stated income and deduction items was $40,000. At the end of the year, the partnership distributed $15,000 of cash to Heather. In addition, the partnership allocated $12,000 of recourse debt and $10,000 of nonrecourse debt to Heather. What is Heather's ending capital account balance determined using the tax basis method?

Accepted Answer

A)   $116,000
B)   $120,000
C)   $126,000
D)   $128,000
E)   $138,000F) C) and D)
G) A) and C)

Question 8

The MOG Partnership reports ordinary income of $60,000, long-term capital gain of $12,000, and tax-exempt income of $12,000. The partnership agreement provides that Molly will receive all long-term capital gains and George will receive all tax-exempt interest income. Their allocation of ordinary income will be reduced accordingly, and Olivia will be allocated a proportionately greater share of ordinary income. (In other words, each partner will receive allocations totaling one-third of the total $84,000 of partnership income.) This allocation was agreed upon because Molly and George are in a high marginal tax bracket and Olivia is in a low marginal tax bracket.
a. Describe the elements that must be included in a partnership agreement in order for an allocation to have economic effect.
b. Discuss whether or not the MOG allocation would be permitted and provide your reasoning.

Accepted Answer

a. For partnership allocations to meet t...

Question 9

Match each of the following statements with the numbered terms below that provide the best definition.
-Disguised sale

Accepted Answer

A)  Organizational choice of many large accounting firms.
B)  Partner's percentage allocation of current operating income.
C)  Might affect any two partners' tax liabilities in different ways.
D)  Partnership in which partners are liable only for any partner's malpractice.
E)  Amount that might be reported on either form 1065, page 1 or, on Schedule K.F) Transfer of asset to partnership followed by immediate distribution of cash to partner.G) Must have at least one general and one limited partner.H) Long-term capital gain might be recharacterized as ordinary income.I) All partners are jointly and severally liable for entity debts.J) Theory treating the partner and partnership as separate economic units.K) Partner's basis in partnership interest after tax-free contribution of asset to partnership.L) Partnership's basis in asset after tax-free contribution of asset to partnership.M) One way to calculate a partner's economic interest in the partnership.N) Owners are members.O) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.P) Participates in management.Q) Not liable for entity debts.R) No correct match provided.S) A) and N)
T) K) and M)

Question 10

Matt, a partner in the MB Partnership, receives a proportionate, current (nonliquidating) distribution of property having a fair market value of $16,000 and a partnership basis of $23,000. Matt's basis in the partnership is $10,000 before the distribution. In this situation, Matt will recognize no gain or loss. He takes a $10,000 basis in the property, and his basis in the partnership interest is reduced to zero.

Accepted Answer

A) True 
 B)False

Question 11

The partner (rather than the partnership)  will make which of the following elections?

Accepted Answer

A)   To claim straight-line depreciation.
B)   To claim a credit or deduction for foreign taxes paid.
C)   To claim a low-income housing credit.
D)   To claim a § 179 deduction for certain property placed in service during the year.
E)   All of these elections.F) C) and E)
G) B) and C)

Question 12

The ELF Partnership distributed $20,000 cash to Emma in a proportionate, current (nonliquidating) distribution.
Emma's basis in her partnership interest was $12,000 immediately before the distribution. As a result of the distribution, Emma's basis is reduced to $0 and she recognizes an $8,000 gain.

Accepted Answer

A) True 
 B)False

Question 13

Match each of the following statements with the numbered terms below that provide the best definition.
-General partner

Accepted Answer

A)  Organizational choice of many large accounting firms.
B)  Partner's percentage allocation of current operating income.
C)  Might affect any two partners' tax liabilities in different ways.
D)  Partnership in which partners are liable only for any partner's malpractice.
E)  Amount that might be reported on either form 1065, page 1 or, on Schedule K.F) Transfer of asset to partnership followed by immediate distribution of cash to partner.G) Must have at least one general and one limited partner.H) Long-term capital gain might be recharacterized as ordinary income.I) All partners are jointly and severally liable for entity debts.J) Theory treating the partner and partnership as separate economic units.K) Partner's basis in partnership interest after tax-free contribution of asset to partnership.L) Partnership's basis in asset after tax-free contribution of asset to partnership.M) One way to calculate a partner's economic interest in the partnership.N) Owners are members.O) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.P) Participates in management.Q) Not liable for entity debts.R) No correct match provided.S) H) and Q)
T) E) and M)

Question 14

JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

Accepted Answer

A) True 
 B)False

Question 15

Concerning a partnership's Form 1065, which of the following statements is not true?

Accepted Answer

A)   The partnership reconciles its "Income (Loss)  per Books" with "Income (Loss)  per Return" on Schedule M-1 or M-3.
B)   The partnership balance sheet on Schedule L is generally presented on a financial (book)  basis.
C)   All taxable/deductible partnership income and expense items are reported on Form 1065, page 1.
D)   The partnership's equivalent of taxable income is reported in the "Analysis of Income (Loss) ."
E)   The partnership deducts its allowable business interest expense on Form 1065, page 1, and allocates any excess to the partners for carryover.F) A) and B)
G) B) and D)

Question 16

Misha receives a proportionate current (nonliquidating)  distribution when the basis of his partnership interest is $60,000. The distribution consists of $80,000 cash and inventory (adjusted basis to the partnership of $10,000, fair market value of $20,000) . How much gain or loss does Misha recognize, and what is his basis in the distributed inventory and in the partnership interest following the distribution?

Accepted Answer

A)   $0 gain or loss; $10,000 basis in inventory; $0 basis in partnership interest.
B)   $0 gain or loss; $20,000 basis in inventory; $50,000 basis in partnership interest.
C)   $20,000 capital gain; $0 basis in inventory; $0 basis in partnership interest.
D)   $20,000 capital gain; $10,000 basis in inventory; $0 basis in partnership interest.
E)   $20,000 ordinary income; $0 basis in inventory; $20,000 basis in partnership interest.F) B) and E)
G) A) and B)

Question 17

BRW Partnership reported gross income from operations of $60,000, interest income of $3,000, utilities expense of
$20,000, and a charitable contribution of $6,000. On its Schedule K, the partnership reports ordinary business income of $40,000, separately stated interest income ($3,000), and charitable contributions ($6,000).

Accepted Answer

A) True 
 B)False

Question 18

A partnership will take a carryover basis in an asset it acquires when:

Accepted Answer

A)   The partnership acquires the asset through a § 1031 like-kind exchange.
B)   A partner owning 25% of partnership capital and profits sells the asset to the partnership.
C)   The partnership leases the asset from a partner on a one-year lease.
D)   The partnership acquires the asset from a partner as a contribution to partnership capital under § 721(a) .
E)   None of these; the partnership always takes a substituted basis in the assets it receives.F) C) and D)
G) A) and E)

Question 19

Mark and Addison formed a partnership. Mark received a 25% interest in partnership capital and profits in exchange for land with a basis of $40,000 and a fair market value of $60,000. Addison received a 75% interest in partnership capital and profits in exchange for $180,000 of cash. Three years after the contribution date, the land contributed by Mark is sold by the partnership to a third party for $76,000. How much taxable gain will Mark recognize from the sale?

Accepted Answer

A)   $0
B)   $9,000
C)   $16,000
D)   $24,000
E)   $36,000F) C) and D)
G) All of the above

Question 20

Mark receives a proportionate current (nonliquidating)  distribution. At the beginning of the partnership year, the basis of his partnership interest is $100,000. During the year, he received a cash distribution of $40,000 and a property distribution (basis of $30,000, fair market value of $25,000) . In addition, Mark's share of partnership liabilities was reduced by $10,000 during the year. How much gain or loss does Mark recognize; what is his basis in the property he received; and what is his remaining basis in the partnership interest?

Accepted Answer

A)   $25,000 loss; $25,000 basis in property; $0 remaining basis.
B)   $30,000 loss; $30,000 basis in property; $0 remaining basis.
C)   $0 gain or loss; $25,000 basis in property; $25,000 remaining basis.
D)   $0 gain or loss; $30,000 basis in property; $20,000 remaining basis.
E)   $0 gain or loss; $30,000 basis in property; $30,000 remaining basis.F) B) and C)
G) D) and E)

Exam 21: Partnerships

Which of the following distributions would never result in gain recognition to the recipient (distributee) partner?

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JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

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The partner (rather than the partnership) will make which of the following elections?

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The ELF Partnership distributed $20,000 cash to Emma in a proportionate, current (nonliquidating) distribution. Emma's basis in her partnership interest was $12,000 immediately before the distribution. As a result of the distribution, Emma's basis is reduced to $0 and she recognizes an $8,000 gain.

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Match each of the following statements with the numbered terms below that provide the best definition. -Disguised sale

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Melissa's basis in the inventory equals...
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A partnership will take a carryover basis in an asset it acquires when:

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Concerning a partnership's Form 1065, which of the following statements is not true?

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a. For partnership allocations to meet t...
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Match each of the following statements with the numbered terms below that provide the best definition. -General partner

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In a limited liability company, all members may participate in management (the operating agreement cannot limit participation), and all entity debts are treated as nonrecourse liabilities for purposes of allocating the LLC's liabilities to basis.

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Exam 21: Partnerships

Which of the following distributions would never result in gain recognition to the recipient (distributee) partner?

Correct AnswerverifiedShow Answer

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JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs. JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs ($1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

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The partner (rather than the partnership) will make which of the following elections?

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The ELF Partnership distributed $20,000 cash to Emma in a proportionate, current (nonliquidating) distribution. Emma's basis in her partnership interest was $12,000 immediately before the distribution. As a result of the distribution, Emma's basis is reduced to $0 and she recognizes an $8,000 gain.

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Match each of the following statements with the numbered terms below that provide the best definition. -Disguised sale

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Correct Answerverified Melissa's basis in the inventory equals...View AnswerShow Answer

A partnership will take a carryover basis in an asset it acquires when:

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Concerning a partnership's Form 1065, which of the following statements is not true?

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Correct Answerverifieda. For partnership allocations to meet t...View AnswerShow Answer

Match each of the following statements with the numbered terms below that provide the best definition. -General partner

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Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a limited liability company, all members may participate in management (the operating agreement cannot limit participation), and all entity debts are treated as nonrecourse liabilities for purposes of allocating the LLC's liabilities to basis.

Correct AnswerverifiedShow Answer

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Melissa's basis in the inventory equals...
View Answer

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a. For partnership allocations to meet t...
View Answer

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