Question 1

Phil and Bill each own a 50 percent interest in P&B Interests.P&B Interests has ordinary income for the year of $35,000 before guaranteed payments to Phil.If Phil receives guaranteed payments of $25,000 during the tax year,what is the total income or loss that should be reported by Phil from the partnership for this tax year?

Accepted Answer

The answer of Phil and Bill each own a 50...

Question 2

Barry owns a 50 percent interest in B&B Interests,a partnership.His brother,Benny,owns a 35 percent interest in that same partnership,and the remaining 15 percent is owned by an unrelated individual.During 2013,Barry sells a rental property with a basis of $60,000 to B&B Interests for $100,000.The partnership intends to hold the rental as inventory for resale.What is the amount and nature of Barry's gain or loss on this transaction?

Accepted Answer

Since the property is being sold to the partnership with the intention of being held as inventory for resale, it is considered a sale to a related party and is treated as a sale to a third party. Therefore, Barry will recognize a $40,000 long-term capital gain on the sale ($100,000 selling price - $60,000 basis = $40,000 gain). However, this gain is considered ordinary income because the property was held for use in a trade or business.

Question 3

For tax purposes,in computing the ordinary income of a partnership,a deduction is allowed for:

Accepted Answer

The deduction allowed for computing the ordinary income of a partnership is payments to partners for services provided to the partnership. These payments are determined without regard to the income of the partnership. Therefore, option A is correct. The net operating loss deduction (option B) is not a deduction for computing the ordinary income of a partnership. Contributions to charitable organizations (option C) may be deductible but are not related to the computation of ordinary income of a partnership. Personal exemptions of the partners (option D) also are not related to the computation of ordinary income of a partnership.

Question 4

Which of the following items must be reported separately from ordinary income or loss on a partnership return?

Accepted Answer

Capital losses must be reported separately as these losses can only be used to offset capital gains, not ordinary income.

Question 5

The partnership of Truman and Hanover realized the following items of income during the year ended December 31,2013: Net income from operations $\quad$$\quad$$\quad \$ 62,000$
Dividends from domestic corporations $\quad \$ 4,000$
Interest on corporate bonds$\quad$$\quad$ $\$ 3,000$
Net long-term capital gains $\quad$$\quad$$\$ 5,000$
Net short-term capital gains$\quad$ $\quad \$ 1,000$ Both 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 2013?

Accepted Answer

The ordinary income from business activities is the net income from operations, which is $62,000. Other items like dividends, interest, and capital gains are not included in ordinary business income.

Question 6

The partnership of Felix and Oscar had the following items of income during the tax year ended December 31,2013: $\begin{array}{lc}
\text { Income from operations } & \$ 156,000 \
\text { Tax-exempt interest income } & \$ 8,000 \
\text { Dividend income } & \$ 6,000
\end{array}$ What is the total ordinary income from business activities passed through by the partnership for the 2013 tax year?

Accepted Answer

Income from operations is ordinary income. Tax-exempt interest income and dividend income are not passed through to the partners.

Question 7

Owen owns 60 percent of the Big Time partnership.He sells to the partnership a machine for $70,000 that has a $45,000 basis.What would the taxable income be for Owen and what is the partnership's basis in the machine?

Accepted Answer

Since Owen owns 60 percent of the partnership, his share of the gain on the sale of the machine is calculated as follows:
Total gain = Sale price - Basis
Total gain = $70,000 - $45,000 = $25,000
Owen's share of the gain = 60% x $25,000 = $15,000
Therefore, Owen's taxable income would be $15,000.
The partnership's basis in the machine would be the purchase price of $70,000.

Question 8

Kitty is a 60 percent partner of Tabby Associates.Kitty sells a building to the partnership for $75,000.If the building had an adjusted basis to Kitty of $95,000,how much gain or loss does Kitty recognize on this transaction?

Accepted Answer

The answer of Kitty is a 60 percent partner of...

Question 9

Which of the following liabilities would be considered nonrecourse?

Accepted Answer

A nonrecourse liability is a debt in which the lender's only recourse in the event of a default is to seize the property serving as collateral for the loan. Option A and B describe liabilities in which the taxpayer is personally liable for the debt, which means that the lender can pursue the taxpayer's other assets if the debt is not repaid. Option C only allows the bank to take the real estate, and not pursue any other assets, making it a nonrecourse liability. Therefore, the correct answer is C.

Question 10

Jim's basis in his partnership is $200,000.His share of the 2013 income is $60,000.The partnership gave him a $75,000 distribution in 2013.What is his new basis in the partnership and what is his taxable income?

Accepted Answer

Jim's new basis is calculated by adding his share of the income ($60,000) to his original basis ($200,000) and then subtracting the distribution ($75,000), resulting in $185,000. His taxable income is his share of the partnership income, which is $60,000.

Question 11

Which of the following is a disadvantage of an LLC?

Accepted Answer

The states have different rules and regulations for setting up and operating an LLC, which can cause confusion and compliance issues for businesses operating in multiple states. This lack of uniformity is a disadvantage of an LLC. A, B and C are not disadvantages, but rather advantages of an LLC: A)Non-security interest in an LLC provides flexibility in ownership transfers without SEC regulations B)No general partner requirement allows for more flexible management structure C)Pass-through taxation allows owners to avoid the double taxation of corporate income.

Question 12

Wallace and Pedersen have equal interests in the capital and profits of the partnership of Wallace and Pedersen,but are otherwise unrelated.On August 1,2013,Wallace sold 100 shares of Kalmia Mining Corporation to the partnership for its fair market value of $7,000.Wallace had bought the stock in 1998 at a cost of $10,000.What is Wallace's deductible loss for 2013 as a result of the sale of this stock?

Accepted Answer

Since Wallace sold the stock to the partnership at fair market value, he did not realize a loss or gain on the sale. However, he can still deduct the loss of $3,000 ($10,000 cost basis - $7,000 fair market value) as a long-term capital loss on his tax return. Since Wallace is a partner in a partnership, this loss would be reported on his individual tax return, not on the partnership's tax return.

Question 13

At the beginning of the year,Joe's basis in his partnership interest was $5,000.During the year,Joe contributed $10,000 in cash to the partnership and signed a bank loan to be personally liable for the partnership's debt of $25,000.For the current year,the partnership allocated a loss of $60,000 to Joe.In the following year,Joe's portion of the partnership income is $30,000.Which of the following is accurate?

Accepted Answer

The answer of At the beginning of the year,Joe's basis...

Question 14

Barbara receives a current distribution consisting of $2,000 cash plus other property with an adjusted basis to the partnership of $2,300 and a fair market value on the date of the distribution of $7,000.Barbara has a 10 percent interest in the partnership and her basis in her partnership interest,immediately prior to the distribution,is $5,000.What is Barbara's basis in the non-cash property received in the current distribution?

Accepted Answer

The answer of Barbara receives a current distribution consisting of...

Question 15

Which one of the following is not true about partnerships and their income-reporting process?

Accepted Answer

The partnership itself does not pay income tax. Instead, the income or losses are passed through to the partners, who are responsible for reporting them on their own tax returns and paying any applicable taxes.

Question 16

Salix Associates is a partnership with an October 31 year-end.For the fiscal year ended October 31,2013,Salix Associates reported ordinary income of $100,000,after deducting guaranteed payments.Max,a calendar year taxpayer,is a 30 percent partner in the partnership and received $2,000 monthly as a guaranteed payment for the calendar year 2012,and $2,100 monthly for the calendar year 2013.What is the total income from the partnership that Max should report on his 2013 individual income tax return?

Accepted Answer

Max's distributive share of partnership income is $30,000 (30% x $100,000). He also received $24,000 in guaranteed payments ($2,000 x 12 months). Therefore, his total income from the partnership is $54,000 ($30,000 + $24,000).

Question 17

Under which of the following circumstances would a partnership terminate and close its tax year?

Accepted Answer

The answer of Under which of the following circumstances would...

Question 18

Which of the following is true about an LLC Limited Liability Company)?

Accepted Answer

An LLC's limited liability is similar to a corporation's. While LLCs can choose to be taxed like a partnership, they are not always treated as such. Additionally, LLCs can have a single member, so they do not require at least two members.

Question 19

Nash and Ford are partners who share profits and losses equally.For the year ended December 31,2013,the partnership had book income of $80,000 which included the following deductions: Guaranteed payments to partners: $\begin{array}{ll}
\text { Nash } & \$ 35,000 \
\text { Ford } & \$ 25,000\\text { Charitable contributions }&\$5,000
\end{array}$ What amount should be reported as ordinary income on the partnership return for 2013?

Accepted Answer

The answer of Nash and Ford are partners who share...

Question 20

Jordan files his income tax return on a calendar-year basis.He is the principal partner of a partnership reporting on a June 30 fiscal year end basis.Jordan's share of the partnership's ordinary income was $24,000 for the fiscal year ended June 30,2013,and $72,000 for the fiscal year ended June 30,2014.How much should Jordan report on his 2013 individual income tax return as his share of taxable income from the partnership?

Accepted Answer

Since Jordan files his income tax return on a calendar-year basis, he should report his share of ordinary income from the partnership for the fiscal year ended June 30, 2013, on his 2013 individual income tax return. Therefore, Jordan should report $24,000 on his 2013 individual income tax return as his share of taxable income from the partnership.

Quiz 10: Partnership Taxation