Question 1

On August 31,2011,Roberta acquired a 20 percent interest in Zelkova Company,a partnership,by contributing property with an adjusted basis of $8,500 and a fair market value of $15,000.The property was subject to a mortgage of $10,000,which was assumed by Zelkova Company.What is Roberta's basis in her partnership interest in Zelkova Company immediately after the partnership contribution?

Accepted Answer

A

Question 2

On September 30,2011,Amber was admitted to partnership in the firm of Waves and Grain.Her contribution to capital consisted of 1,000 shares of stock in Biotech Corporation,which she bought in 2002 for $15,000 and which had a fair market value of $45,000 on September 30,2011.Amber's interest in the partnership's capital and profits is 40 percent.On September 30,2011,the fair market value of the partnership's net assets (after Amber was admitted)was $112,500,and profit for the 3 months ended December 31,2011 was $6,000.What is Amber's taxable gain in 2011 on the exchange of stock for her partnership interest?

Accepted Answer

E

Question 3

An equal partnership is formed by Romero and Geraldo.Romero contributes cash of $20,000 and a building with a fair market value of $135,000,adjusted basis of $65,000,and subject to a liability of $80,000.Geraldo contributes cash of $75,000.What amount of gain must Romero recognize as a result of this transaction and what is Romero's basis in his partnership interest immediately after formation of the partnership?

Accepted Answer

C

Question 4

An advantage of a limited liability corporation (LLC)is:

Accepted Answer

An LLC provides limited liability protection to its owners and often avoids many of the complex accounting and legal requirements that corporations face under securities law.

Question 5

Sagretia Associates is a partnership with a September 30 year end.For the fiscal year ended September 30,2011,Sagretia Associates reported ordinary income of $120,000,after deducting guaranteed payments.South,a calendar year taxpayer,is a 25 percent partner in the partnership and received $2,500 monthly as a guaranteed payment for the calendar year 2010,and $2,800 monthly for the calendar year 2011.What is the total income from the partnership that South should report on his 2011 individual income tax return?

Accepted Answer

South's share of the partnership's ordinary income for the fiscal year ending September 30, 2011, is 25% of $120,000, which is $30,000. For the calendar year 2011, South received $2,800 monthly as guaranteed payments, totaling $33,600 ($2,800 x 12 months). Therefore, the total income South should report is $30,000 + $33,600 = $63,600. However, the correct choice is D ($62,700) because the guaranteed payments for the last three months of 2010 ($2,500 x 3 = $7,500) should be included in the 2011 tax return, making the total $30,000 + $33,600 - $7,500 = $62,700.

Question 6

Each of the following items needs to be reported separately to the partners of a partnership,except for:

Accepted Answer

The answer of Each of the following items needs to...

Question 7

Partnerships:

Accepted Answer

In a limited partnership, there is at least one general partner who manages the business and is personally liable for debts, and at least one limited partner who contributes capital and shares in profits but does not manage the business and has limited liability.

Question 8

Choose the correct statement.

Accepted Answer

Qualified nonrecourse debt on real estate is considered an amount that is at risk because it is secured by real property used in the activity, and the taxpayer is at risk for the amount of the debt.

Question 9

Sam and Steve have equal interests in the capital and profits of the S&S Partnership and are unrelated.On August 31,2011,Sam sold 250 shares of Tourmaline Corporation to the partnership for its fair market value of $7,500.Sam had bought the stock in 2000 at a cost of $12,000.What is Sam's deductible loss for 2011 as a result of the sale of this stock?

Accepted Answer

Sam sold the stock in 2011 for $7,500 and had purchased it in 2000 for $12,000, resulting in a long-term capital loss of ($12,000 - $7,500) = $4,500. This loss is deductible on Sam's tax return. Since Sam is an individual and not a trader in securities, the loss is treated as a capital loss rather than an ordinary loss. Choice C is the correct answer.

Question 10

Bonbon receives a current distribution consisting of $5,000 cash plus other property with an adjusted basis to the partnership of $6,000 and a fair market value on the date of the distribution of $12,000.Bonbon has a 10 percent interest in the partnership and her basis in her partnership interest immediately prior to the distribution is $15,000.What is Bonbon's basis in the non-cash property received in the current distribution?

Accepted Answer

Bonbon's basis in the non-cash property is the lesser of the partnership's adjusted basis in the property ($6,000) or her remaining basis in the partnership interest after the cash distribution ($15,000 - $5,000 = $10,000). Thus, her basis in the non-cash property is $6,000.

Question 11

Roger is a 51 percent partner of Ralph & Associates.Roger sells a building to the partnership for $80,000.If the building had an adjusted basis to Roger of $105,000,how much gain or loss does Roger recognize on this transaction?

Accepted Answer

The answer of Roger is a 51 percent partner of...

Question 12

Casey is a partner in the Slugger Partnership.The partnership sent Casey a Schedule K-1 for its year-ended on September 30,2011.The Schedule K-1 reported Casey's share of net income after guaranteed payments of $60,000 and guaranteed payments to Casey of $6,000 ($500 per month).Casey's share of the partnership's income after guaranteed payments for October 1,2011 through December 31,2011 was $6,000.Also,Casey's guaranteed payments for that time period was $3,000 ($1,000 per month).How much income from the partnership should Casey report on his 2011 individual income tax return?

Accepted Answer

The answer of Casey is a partner in the Slugger...

Question 13

The return for a partnership which has a December 31 year-end is due on:

Accepted Answer

The answer of The return for a partnership which has...

Question 14

At the beginning of the year,Leilani contributes property to a partnership in exchange for a 20 percent partnership interest.The property contributed has a fair market value of $60,000 and a basis of $40,000 on the date of the contribution to the partnership.In addition,Leilani receives a 10 percent partnership interest,valued at $30,000,in exchange for services rendered to the partnership in the prior year.The partnership earned $90,000 during the year.What is Leilani's basis in her partnership interest at the beginning of the year and at the end of the year?

Accepted Answer

Leilani's initial basis is $70,000, which includes the $40,000 basis of the contributed property and the $30,000 value of the partnership interest received for services. At the end of the year, her basis is $97,000, which includes her share of the partnership's earnings ($90,000 * 30% = $27,000) added to her initial basis.

Question 15

Daniel is a 30 percent general partner in ABC Gum.His basis in his partnership interest at the beginning of the year was $1,000.The partnership had no debt at the beginning of the year.This year,the partnership reported a net loss of $10,000.The partnership also took out a $3,000 recourse loan during the year.How much of the loss may Daniel deduct on his tax return?

Accepted Answer

As a 30 percent general partner, Daniel's share of the partnership loss is $3,000 ($10,000 loss x 30 percent). However, since the partnership took out a $3,000 recourse loan that Daniel is personally liable for, his basis in the partnership has increased to $4,000 ($1,000 beginning basis + $3,000 loan). He can deduct the loss up to his basis, so he can deduct $1,900 ($4,000 basis - $2,100 share of loss already deducted). Therefore, the correct answer is option C.

Question 16

Manny,a 15 percent partner,Moe,a 30 percent partner,Jack,a 50 percent partner,and Henry,a 5 percent partner,own an auto repair shop together.During 2011,Manny and Moe work in the shop and receive guaranteed payments of $40,000 and $20,000 respectively.Before the guaranteed payment,the auto shop's 2011 net income was $160,000.Please choose the correct statement below.

Accepted Answer

The answer of Manny,a 15 percent partner,Moe,a 30 percent partner,Jack,a...

Question 17

Which of the following is a partnership?

Accepted Answer

A partnership is typically formed when two or more individuals agree to operate a business together, as in the case of the two gentlemen who have decided to operate a barbershop together.

Question 18

Bill has basis in his partnership interest of $15,000 before any distributions.The partnership made the following distributions to Bill: $5,000 in cash,a computer system worth $1,000 in which the partnership has basis of $7,000,and a truck worth $10,000 in which the partnership has basis of $21,000.Bill:

Accepted Answer

Bill's basis in his partnership interest is reduced by the cash distribution first, then by the basis of the property distributed. After the $5,000 cash distribution, his basis is $10,000. The basis of the computer system is $7,000, reducing his basis to $3,000. The truck's basis is $21,000, but Bill's remaining basis is only $3,000, so his basis in the truck is $3,000, and his partnership interest basis is zero.

Question 19

John owns a 20 percent interest in J&B Interests,a partnership.His brother,Brian,owns a 35 percent interest in that same partnership,and the remaining 45 percent is owned by an unrelated individual.During 2011,John sells a classic automobile from his personal collection with a basis of $80,000 to J&B Interests for $110,000.The partnership intends to hold the auto as part of its inventory for resale.What is the amount and nature of John's gain or loss on this transaction?

Accepted Answer

John's gain on the sale of the automobile to the partnership is $30,000 ($110,000 - $80,000). Since the partnership intends to hold the automobile as inventory for resale, the gain is treated as ordinary income rather than a capital gain.

Question 20

The partnership of Nixon and Whittier realized the following items of income during the year ended December 31,2011:  Both of the partners are on a calendar year basis.What is the total income which should be reported as ordinary income from business activities of the partnership for 2011?

Accepted Answer

Adding up the ordinary income ($80,000) and the guaranteed payments ($13,000) gives a total income of $93,000. This is the figure that should be reported as the ordinary income from business activities of the partnership for 2011.

Quiz 10: Partnership Taxation

An advantage of a limited liability corporation (LLC) is: