FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 10: Partnerships: Formation, operation, and Basis

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Short Answer

Review LaterAdd Note

Review Later

Match each of the following statements with the terms below that provide the best definition. a.Organizational choice of many large accounting firms. b.Partner's percentage allocation of current operating results. c.Might affect any two partners' tax liabilities in different ways. d.Brokerage and registration fees incurred for promoting and marketing partnership interests. e.Transfer of asset to partnership followed by immediate distribution of cash to partner. f.Must have at least one general partner. g.Theory treating the partner and partnership as separate economic units. h.Partner's basis in partnership interest after tax-free contribution of asset to partnership. i.Partnership's basis in asset after tax-free contribution of asset to partnership. j.Owners are "members." k.Theory treating the partnership as a collection of taxpayers joined in an agency relationship. l.Allows many unincorporated entities to select their Federal tax status. m.No correct match provided. -Substituted

Correct Answer

verified

Show Answer

Question 2

True/False

Review LaterAdd Note

Review Later

During the current year,John and Ashley form the JA Partnership and agree to share profits and losses equally.John contributes cash of $50,000 and Ashley contributes land with a fair market value of $80,000 (subject to a $30,000 nonrecourse mortgage).On the contribution date,Ashley's adjusted basis in the land is $40,000.Immediately after formation,John's partnership outside basis is $65,000,Ashley's partnership outside basis is $25,000,and JA's basis in the land is $40,000.

A) True
B) False

Correct Answer

verified

Show Answer

Question 3

True/False

Review LaterAdd Note

Michael contributes land with a value of $120,000 and a basis of $80,000 to the MNO Partnership in exchange for a 1/4 interest.Soon thereafter,the partnership sells the land for $140,000.Of the gain on the land sale,$15,000 is allocated to Michael.

Match each of the following statements with the terms below that provide the best definition. a.Organizational choice of many large accounting firms. b.Partner's percentage allocation of current operating results. c.Might affect any two partners' tax liabilities in different ways. d.Brokerage and registration fees incurred for promoting and marketing partnership interests. e.Transfer of asset to partnership followed by immediate distribution of cash to partner. f.Must have at least one general partner. g.Theory treating the partner and partnership as separate economic units. h.Partner's basis in partnership interest after tax-free contribution of asset to partnership. i.Partnership's basis in asset after tax-free contribution of asset to partnership. j.Owners are "members." k.Theory treating the partnership as a collection of taxpayers joined in an agency relationship. l.Allows many unincorporated entities to select their Federal tax status. m.No correct match provided. -Limited partnership

Match each of the following statements with the terms below that provide the best definition. a.Operating expenses incurred after entity is formed but before it begins doing business. b.Each partner's basis in the partnership. c.Tax accounting election made by partnership. d.Tax accounting calculation made by partner e.Tax accounting election made by partner. f.Designed to prevent excessive deferral of taxation of partnership income. g.Amount that may be received by partner for performance of services for the partnership. h.Adjusted basis of each partnership asset. i.Computation that determines the way recourse debt is shared. j.Will eventually be allocated to partner making tax-free property contribution to partnership. k.Must be satisfied if a loss item is to be specially allocated to a partner. l.Justification for a tax year other than the required taxable year. m.No correct match is provided. -Guaranteed payment

During the current year,ALF Partnership reported the following items of receipts and expenditures: $200,000 sales,$10,000 utilities,$12,000 rent,$50,000 salaries to employees,$30,000 guaranteed payment to partner Lloyd,investment interest income of $3,000,a charitable contribution of $5,000,and a distribution of $10,000 to partner Frank.Arnold,a 40% partner,will receive a K-1 that reflects a $39,200 share of partnership ordinary income,a $1,200 share of partnership interest income,and a $2,000 charitable contribution.

The MNO Partnership,a calendar year taxpayer,was formed on July 1 of the current year and started business on October 1.MNO incurred $3,000 of legal fees on formation and $30,000 in start-up costs.MNO may deduct $5,000 and amortize the remaining $28,000 over 180 months starting in July,for $933 in the current year.

Sharon and Sara are equal partners in the S&S Partnership.On January 1 of the current year,each partner's adjusted basis in S&S was $50,000 (including each partner's $15,000 share of the partnership's $30,000 of liabilities) .During the current year,S&S repaid the beginning liabilities and borrowed $20,000 for which Sharon and Sara are equally liable.In the current year ended December 31,S&S also sustained a net operating loss of $25,000 and earned $5,000 of interest and qualified dividend income from investments.If liabilities are shared equally by the partners,on January 1 of the next year each partner's basis in her interest in S&S is:

The STU Partnership is involved in leasing heavy equipment under long-term leases of five years or more.Simone has an adjusted basis for her partnership interest on January 1 of the current year of $140,000,consisting of the following: During the year,the partnership has an operating loss of $450,000 and distributes $30,000 of cash to Simone.Partnership liabilities were the same at the end of the tax year,and the nonrecourse debt is not "qualified nonrecourse debt." If she owns a 1/3 share of partnership profits,capital,and losses,and is a material participant in the partnership,how much of her share of the operating loss can Simone deduct? What Code provisions could cause a suspension of the loss?

Match each of the following statements with the terms below that provide the best definition. a.Organizational choice of many large accounting firms. b.Partner's percentage allocation of current operating results. c.Might affect any two partners' tax liabilities in different ways. d.Brokerage and registration fees incurred for promoting and marketing partnership interests. e.Transfer of asset to partnership followed by immediate distribution of cash to partner. f.Must have at least one general partner. g.Theory treating the partner and partnership as separate economic units. h.Partner's basis in partnership interest after tax-free contribution of asset to partnership. i.Partnership's basis in asset after tax-free contribution of asset to partnership. j.Owners are "members." k.Theory treating the partnership as a collection of taxpayers joined in an agency relationship. l.Allows many unincorporated entities to select their Federal tax status. m.No correct match provided. -Limited liability company

PaulCo,DavidCo,and Ralph form a partnership with cash contributions of $80,000,$50,000 and $30,000,respectively,and agree to share profits and losses in the ratio of their original cash contributions.PaulCo uses a January 31 fiscal year-end,while DavidCo and Ralph use a November 30 and December 31 fiscal year-end,respectively.Since PaulCo is a majority partner,this partnership will use a January 31 year-end.

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 1/3 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.

Cheryl and Nina formed a partnership.Cheryl received a 40% interest in partnership capital and profits in exchange for contributing land with a basis of $60,000 and a fair market value of $80,000.Nina received a 60% interest in partnership capital and profits in exchange for contributing $120,000 of cash.Three years after the contribution date,the land contributed by Cheryl is sold by the partnership to a third party for $90,000.How much taxable gain will Cheryl recognize from the sale?

Rachel and Barry formed the equal RB Partnership during the current year,with Rachel contributing $100,000 in cash and Barry contributing land (basis of $60,000,fair market value of $80,000)and equipment (basis of $0,fair market value of $20,000).Barry recognizes a $40,000 gain on the contribution and his basis in his partnership interest is $100,000.

Match each of the following statements with the terms below that provide the best definition. a.Operating expenses incurred after entity is formed but before it begins doing business. b.Each partner's basis in the partnership. c.Tax accounting election made by partnership. d.Tax accounting calculation made by partner e.Tax accounting election made by partner. f.Designed to prevent excessive deferral of taxation of partnership income. g.Amount that may be received by partner for performance of services for the partnership. h.Adjusted basis of each partnership asset. i.Computation that determines the way recourse debt is shared. j.Will eventually be allocated to partner making tax-free property contribution to partnership. k.Must be satisfied if a loss item is to be specially allocated to a partner. l.Justification for a tax year other than the required taxable year. m.No correct match is provided. -Precontribution gain

Match each of the following statements with the terms below that provide the best definition. a.Operating expenses incurred after entity is formed but before it begins doing business. b.Each partner's basis in the partnership. c.Tax accounting election made by partnership. d.Tax accounting calculation made by partner e.Tax accounting election made by partner. f.Designed to prevent excessive deferral of taxation of partnership income. g.Amount that may be received by partner for performance of services for the partnership. h.Adjusted basis of each partnership asset. i.Computation that determines the way recourse debt is shared. j.Will eventually be allocated to partner making tax-free property contribution to partnership. k.Must be satisfied if a loss item is to be specially allocated to a partner. l.Justification for a tax year other than the required taxable year. m.No correct match is provided. -Required taxable year

Match each of the following statements with the terms below that provide the best definition. a.Operating expenses incurred after entity is formed but before it begins doing business. b.Each partner's basis in the partnership. c.Tax accounting election made by partnership. d.Tax accounting calculation made by partner e.Tax accounting election made by partner. f.Designed to prevent excessive deferral of taxation of partnership income. g.Amount that may be received by partner for performance of services for the partnership. h.Adjusted basis of each partnership asset. i.Computation that determines the way recourse debt is shared. j.Will eventually be allocated to partner making tax-free property contribution to partnership. k.Must be satisfied if a loss item is to be specially allocated to a partner. l.Justification for a tax year other than the required taxable year. m.No correct match is provided. -Constructive liquidation scenario

Match each of the following statements with the terms below that provide the best definition. a.Operating expenses incurred after entity is formed but before it begins doing business. b.Each partner's basis in the partnership. c.Tax accounting election made by partnership. d.Tax accounting calculation made by partner e.Tax accounting election made by partner. f.Designed to prevent excessive deferral of taxation of partnership income. g.Amount that may be received by partner for performance of services for the partnership. h.Adjusted basis of each partnership asset. i.Computation that determines the way recourse debt is shared. j.Will eventually be allocated to partner making tax-free property contribution to partnership. k.Must be satisfied if a loss item is to be specially allocated to a partner. l.Justification for a tax year other than the required taxable year. m.No correct match is provided. -Inside basis

Monroe,a 1/3 partner with a basis in the interest of $60,000 at the beginning of the year,received a guaranteed payment in the current year of $40,000.Partnership income before consideration of the guaranteed payment was $25,000.Monroe must report a $5,000 ordinary loss from partnership operations,and the $40,000 guaranteed payment as ordinary income.

Harry and Sally are considering forming a partnership.Both taxpayers use the calendar year and are cash basis taxpayers.The partnership will not be a tax shelter.The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting.Also,the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership. As their tax adviser,identify the issues that must be considered in selecting an accounting method and tax year for the partnership.