Question 1

Bob contributes cash of $40,000 and Carol contributes land with a basis of $25,000 and an FMV of $40,000 to become equal partners in the BC Partnership. The partnership immediately obtains a $30,000 mortgage on the land and the partners will share the economic risk of loss equally. What are the two partners' bases in the partnership after these transactions are completed?

Accepted Answer

The answer of Bob contributes cash of $40,000 and Carol...

Question 2

Sarah purchased land for investment in 2008 for $80,000. In 2009 when the FMV of the land was only $70,000, she contributed it to the SL Partnership, which is in the business of developing and selling lots. SL Partnership developed the contributed land and sold it in 2010 for $50,000. What is the amount and character of the gain or loss?

Accepted Answer

The answer of Sarah purchased land for investment in 2008...

Question 3

For a 30% interest in partnership capital, profits, and losses, Carol contributes a machine with a basis of $40,000 and an FMV of $80,000. The partnership assumes a $70,000 recourse liability on the machine. At the time of the contribution, the partnership had recourse liabilities of $10,000. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Following the contribution, Carol has

Accepted Answer

The answer of For a 30% interest in partnership capital,...

Question 4

Allen contributed land, which was being held for sale to Allen's customers, to a partnership in exchange for a 20% interest. The partnership uses the land in its business for three years and then sells the property. When the property was contributed, it had a basis in Allen's hands of $500,000 and an FMV of $600,000. The partnership sells the land for $700,000. The gain reported by the partnership is

Accepted Answer

The answer of Allen contributed land, which was being held...

Question 5

Kay and Larry each contribute property to become equal partners in the KL General Partnership. Kay contributes office furniture with an adjusted basis of $40,000 and an FMV of $50,000, which she has depreciated using MACRS. Larry contributes land with a basis of $60,000 and an FMV of $50,000, which he had been holding as an investment. The partnership will use the land as a parking lot for their business.
a) What is the partnership's basis in each of the two pieces of property?
b) If the land that Larry contributed is sold four years after the contribution for $45,000, what is the amount and character of the gain or loss which Larry should report?

Accepted Answer

The answer of Kay and Larry each contribute property to...

Question 6

Stella acquired a 25% interest in the STUV Partnership by contributing land having an adjusted basis of $32,000 and a fair market value of $100,000. The land was subject to a $48,000 mortgage, which was assumed by STUV. No other liabilities existed at the time of contribution. What is Stella's basis in her partnership interest?

Accepted Answer

Stella's basis in her partnership interest is calculated as her adjusted basis in the land ($32,000) minus the mortgage assumed by the partnership ($48,000), resulting in a negative $16,000. However, basis cannot be negative, so it is reduced to $0.

Question 7

George receives a 10% limited partnership interest (capital and profits interest) in the HIJ Partnership in return for managing the partnership's rental property. The partnership interest has an FMV of $35,000. What is the amount and character of the income (if any) that George must report as a result of becoming a partner?

Accepted Answer

The answer of George receives a 10% limited partnership interest...

Question 8

Mario contributes inventory to a partnership on August 1 of this year in exchange for a 20% partnership interest. Mario had purchased the inventory on July 2 of last year. His holding period for the partnership interest begins

Accepted Answer

The answer of Mario contributes inventory to a partnership on...

Question 9

The RT Limited Partnership incurs the following expenses during the time that the partnership is being organize $\begin{array}{ll}\text { Attorneys' fees: }\
\text { For drawing up the partnership agreement }&\$10,000\
\text { For advice on marketing the partnership interests on a }\
\text { stock exchange }&14,000\
\text { Accountants' fees: }\
\text { For establishing the accounting system }&6,000\
\text { For the first quarter's bookkeeping }&600
\end{array}$
 What is the maximum amount that the partnership can deduct as an organization and syndication expense for th first year in which the partnership begins business, assuming the business began on October 1?

Accepted Answer

The answer of The RT Limited Partnership incurs the following...

Question 10

Jane contributes land with an FMV of $100,000 and a basis of $40,000 to the Green Partnership in exchange for a 25% partnership interest. The partnership assumes the $80,000 mortgage on the land. Mary has a 25% share of partnership liabilities. The Green Partnership has $8,000 in liabilities immediately before Jane's contribution. What is Jane's basis in her partnership interest?

Accepted Answer

The answer of Jane contributes land with an FMV of...

Question 11

Karl arranges financing for a limited partnership to purchase real estate in exchange for a 50% interest in partnership profits. Two weeks later, Karl sells the profits interest for $30,000. In this tax year, Karl must recognize

Accepted Answer

When Karl sold his profits interest, it is considered as ordinary income, so Karl must recognize $30,000 as ordinary income in the tax year. A is incorrect because it is not a short-term capital gain. B is incorrect because it is not a Sec. 1231 gain. D is incorrect because there is a gain that should be recognized.

Question 12

Rashad contributes a machine having a basis of $30,000 and an FMV of $25,000 to a partnership in exchange for a 20% interest in partnership capital, profits, and losses. Prior to the contribution, the partnership had recourse liabilities of $20,000. The partnership assumes a $20,000 recourse liability that is owed by Rashad on the machine. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Rashad's basis in his partnership interest is

Accepted Answer

Rashad's basis in his partnership interest is calculated as follows:
Basis of contributed property: $30,000
FMV of contributed property: $25,000
Rashad's deemed sale price: $25,000
Adjusted basis of contributed property: $30,000 - $20,000 = $10,000
Rashad's recognized loss on deemed sale: $25,000 - $10,000 = $15,000
Rashad's share of partnership liabilities: $20,000
Rashad's adjusted basis in partnership interest: $15,000 - $20,000 = -$5,000
However, the adjusted basis cannot be negative, so Rashad's basis is limited to zero. Therefore, his basis in his partnership interest is $0 + 20% of the partnership liabilities assumed by the partnership, which is $4,000. Therefore, Rashad's basis in his partnership interest is $4,000.

Question 13

Jane contributes land with an FMV of $100,000 and a basis of $80,000 to the Green Partnership in exchange for a 25% partnership interest. The partnership assumes the $40,000 mortgage on the land. Mary has a 25% share of partnership liabilities. The Green Partnership has $8,000 in liabilities immediately before Jane's contribution. What is Jane's basis in her partnership interest?

Accepted Answer

The answer of Jane contributes land with an FMV of...

Question 14

Ali, a contractor, builds an office building for a construction partnership in exchange for a capital and profits interest in the partnership worth $500,000. Which of the following statements is correct?
A) Ali recognizes no income and the partnership can deduct nothing in the current year.
B) Ali recognizes $500,000 of ordinary income and the partnership can deduct $500,000 in the current year.
C) Ali recognizes $500,000 ordinary income and the partnership deducts the $500,000 over the building's MACRS recovery period as a depreciation expense.
D) Ali recognizes ordinary income in the current year in an amount equal to the depreciation deduction the partnership claims this year for the $500,000 capitalized amount.

Accepted Answer

The answer of Ali, a contractor, builds an office building...

Question 15

David contributes investment land with a basis of $24,000 and an FMV of $40,000 to a partnership for a 10% interest in partnership capital, profits, and losses. The land is subject to a $30,000 recourse liability, which is assumed by the partnership. The partnership has other recourse liabilities of $18,000. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. David must recognize a

Accepted Answer

The answer of David contributes investment land with a basis...

Question 16

For a 20% interest in partnership capital, profits, and losses, Kasi contributes a machine having a basis of $30,000 and an FMV of $40,000. The partnership also assumes a $24,000 recourse liability secured by the machine. The partnership has $6,000 in recourse liabilities immediately preceding Kasi's contributions. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Kasi's basis in the partnership interest is
A) $10,800.
B) $13,200.
C) $12,000.
D) $30,000.

Accepted Answer

The answer of For a 20% interest in partnership capital,...

Question 17

Identify which of the following statements is true.

Accepted Answer

A is false because the gain recognized by a contributing partner because of the assumption of liabilities by the partnership does not increase the partnership's basis in the contributed property; rather, it reduces the gain recognized by the contributing partner. C is also false because when a partnership assumes any liabilities of the transferor, the transferor has a decrease in the basis of his or her partnership interest. Therefore, the only true statement is B - a partner's relief of debt is treated as if the partner receives a cash distribution.

Question 18

Identify which of the following statements is true.

Accepted Answer

When a partnership interest is given to a partner in exchange for services, the partnership can either deduct or capitalize the fair market value of the services, depending on whether the services are of a capital nature or not.

Question 19

Albert contributes a Sec. 1231 asset to a partnership on June 1 of this year in exchange for a 10% partnership interest. He had purchased the asset on March 1, 2002. His holding period for the partnership interest begins

Accepted Answer

The answer of Albert contributes a Sec. 1231 asset to...

Question 20

Bao had investment land that he purchased in 1990 for $80,000. Two years ago, when the land was contributed to a partnership, the FMV was $50,000. The land is inventory in the hands of the partnership. The partnership then sells the land in the current year for $46,000. The partnership's recognized loss is

Accepted Answer

The answer of Bao had investment land that he purchased...

Quiz 9: Partnership Formation and Operation

Mario contributes inventory to a partnership on August 1 of this year in exchange for a 20% partnership interest. Mario had purchased the inventory on July 2 of last year. His holding period for the partnership interest begins

Karl arranges financing for a limited partnership to purchase real estate in exchange for a 50% interest in partnership profits. Two weeks later, Karl sells the profits interest for $30,000. In this tax year, Karl must recognize

Identify which of the following statements is true.

Identify which of the following statements is true.

Albert contributes a Sec. 1231 asset to a partnership on June 1 of this year in exchange for a 10% partnership interest. He had purchased the asset on March 1, 2002. His holding period for the partnership interest begins