Question 1

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

Accepted Answer

A) An LLC is always treated like a corporation for tax purposes. 
B) An LLC must have at least two members. 
C) An LLC is always taxed like a partnership. 
D) An LLC's limited liability is similar to a corporation's. 
E) All of the above are false. 
A) An LLC is always treated like a corporation for tax purposes. 
B) An LLC must have at least two members. 
C) An LLC is always taxed like a partnership. 
D) An LLC's limited liability is similar to a corporation's. 
E) All of the above are false. D

Question 2

If Margo and Bruce purchase and operate an ice cream store, for tax purposes they have formed a partnership.

Accepted Answer

A) True 
 B)False  True

Question 3

Guaranteed payments made by a partnership must be made to individuals other than partners in the partnership.

Accepted Answer

A) True 
 B)False  False

Question 4

A partner contributes assets with a basis of $50,000 and a fair market value of $80,000 to a partnership. What is the basis of the property to the partnership and what is the general rule for the basis of appreciated property contributed to a partnership?

Accepted Answer

The basis to the partnership is $50,000,

Question 5

Mario and Luigi are brothers and they are equal partners in Pipes of Your Dreams Plumbing. Mario sells his fancy sports car to the business for $40,000. Mario's basis in the car is $45,000.
a.What is the amount of Mario's recognized gain or loss on this transaction, and what is the nature of the gain or loss?
b.If the partnership later sells the sports car for $55,000, how much of the gain is recognized?

Accepted Answer

a. $0. The $5,000 loss is disallowed sin

Question 6

On July 1 of the current year, Ambrose was admitted to the partnership of Ambrose and Nectar. His contribution to capital consisted of 500 shares of stock in Paniculata Corporation, which he bought in 2000 for $10,000 and which had a fair market value of $50,000 on July 1, 2015. Ambrose's interest in the partnership's capital and profits is 25 percent. On July 1, 2015, the fair market value of the partnership's net assets (after Ambrose was admitted) was $200,000. What is Ambrose's taxable gain in 2015 on the exchange of stock for his partnership interest?

Accepted Answer

A) $0 gain or loss 
B) $40,000 ordinary income 
C) $40,000 long-term capital gain 
D) $40,000 Section 1231 gain 
E) None of the above 
A) $0 gain or loss 
B) $40,000 ordinary income 
C) $40,000 long-term capital gain 
D) $40,000 Section 1231 gain 
E) None of the above

Question 7

Partnership income is taxed at the same tax rates as the income of corporations.

Accepted Answer

A) True 
 B)False

Question 8

A partnership must separately report Section 1231 gains and losses rather than including them in ordinary taxable income.

Accepted Answer

A) True 
 B)False

Question 9

A partner's interest in a partnership is decreased by:

Accepted Answer

A) Capital gains of the partnership. 
B) Distributions from the partnership. 
C) Taxable income of the partnership. 
D) Additional contributions by the partner. 
E) None of the above. 
A) Capital gains of the partnership. 
B) Distributions from the partnership. 
C) Taxable income of the partnership. 
D) Additional contributions by the partner. 
E) None of the above.

Question 10

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

A) $25,000; $45,000 
B) $0; $45,000 
C) $25,000; $70,000 
D) None of the above is correct 
A) $25,000; $45,000 
B) $0; $45,000 
C) $25,000; $70,000 
D) None of the above is correct

Question 11

On July 1 of the current year, Bertram acquired a 25 percent interest in Sycamore Company, a partnership, by contributing property with an adjusted basis of $7,000 and a fair market value of $12,000. The property was subject to a mortgage of $8,000, which was assumed by Sycamore Company. What is Bertram's basis in his partnership interest in Sycamore Company immediately after the partnership contribution?

Accepted Answer

A) $0 
B) $1,000 
C) $7,000 
D) $12,000 
E) None of the above 
A) $0 
B) $1,000 
C) $7,000 
D) $12,000 
E) None of the above

Question 12

The "at-risk" rule applies, with limited exceptions, to all taxable activities.

Accepted Answer

A) True 
 B)False

Question 13

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, 2015, and $72,000 for the fiscal year ended June 30, 2016. How much should Jordan report on his 2015 individual income tax return as his share of taxable income from the partnership?

Accepted Answer

A) $24,000 
B) $36,000 
C) $48,000 
D) $72,000 
E) None of the above 
A) $24,000 
B) $36,000 
C) $48,000 
D) $72,000 
E) None of the above

Question 14

Which of the following statements about partnerships is true?

Accepted Answer

A) Partnerships must file their tax returns on a calendar year basis. 
B) No gain or loss is ever recognized in transactions between partners and a partnership. 
C) Gain is never recognized by a partner on a contribution of property to a partnership. 
D) A partner's original basis in a partnership interest is equal to the basis of the property transferred (plus cash contributed) to the partnership, adjusted for any gain recognized on the transfer and reduced for liabilities assumed by the other partners. 
E) The partnership's basis in property contributed by a partner is equal to the fair market value of the property on the date of the transfer. 
A) Partnerships must file their tax returns on a calendar year basis. 
B) No gain or loss is ever recognized in transactions between partners and a partnership. 
C) Gain is never recognized by a partner on a contribution of property to a partnership. 
D) A partner's original basis in a partnership interest is equal to the basis of the property transferred (plus cash contributed) to the partnership, adjusted for any gain recognized on the transfer and reduced for liabilities assumed by the other partners. 
E) The partnership's basis in property contributed by a partner is equal to the fair market value of the property on the date of the transfer.

Question 15

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

A) In the following year, Joe's reportable taxable income from the partnership is $10,000. 
B) Joe's basis in his partnership at the end of the year is $15,000. 
C) Joe may deduct all of the $60,000 loss in the current year. 
D) Joe may carry over a $45,000 loss to the following year. 
A) In the following year, Joe's reportable taxable income from the partnership is $10,000. 
B) Joe's basis in his partnership at the end of the year is $15,000. 
C) Joe may deduct all of the $60,000 loss in the current year. 
D) Joe may carry over a $45,000 loss to the following year.

Question 16

Which of the following is a disadvantage of an LLC?

Accepted Answer

A) For security law purposes, an ownership interest in an LLC is not necessarily a security. 
B) There is no general partner requirement. 
C) Taxable income and losses pass through to the owners. 
D) The states are not uniform in their treatment of limited liability companies. 
A) For security law purposes, an ownership interest in an LLC is not necessarily a security. 
B) There is no general partner requirement. 
C) Taxable income and losses pass through to the owners. 
D) The states are not uniform in their treatment of limited liability companies.

Question 17

Income from a partnership is taxed to the partner only if the partner receives the income as a distribution during the year.

Accepted Answer

A) True 
 B)False

Question 18

Cypress Road is a partnership with two partners, Saul, a 60 percent partner, and Robbie, a 40 percent partner. The partnership has income for the year of $100,000 before guaranteed payments to Robbie. Guaranteed payments of $50,000 are paid to Robbie for his management services during the year. Calculate the amount of income that should be reported by Saul and Robbie from the partnership for the year.
Saul should report income of $__________.
Robbie should report income of $__________.

Accepted Answer

Saul: $30,000 = 60%

Question 19

Guaranteed payments received from a partnership are included in the income of the partner receiving the payments on a cash basis, without regard to the partnership's tax year.

Accepted Answer

A) True 
 B)False

Question 20

Jack and Jill decided to pool their money and start a water delivery business. Since they trust each other so much, they did not draw up any legal documents for the business. During the first year of business, they earned $50,000 which was net of $10,000 paid to Jill as a guaranteed payment. During the second year of business, they decided to limit their liability exposure by forming an LLP.
​
a.Was a partnership formed during the first year?
b.If a partnership was formed, how much income will the partnership pay tax on?
c.For the second year, do they need to file a partnership tax return?

Accepted Answer

a. Yes.
b. $0. There is no tax at the pa

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

If Margo and Bruce purchase and operate an ice cream store, for tax purposes they have formed a partnership.

Guaranteed payments made by a partnership must be made to individuals other than partners in the partnership.

A partner contributes assets with a basis of $50,000 and a fair market value of $80,000 to a partnership. What is the basis of the property to the partnership and what is the general rule for the basis of appreciated property contributed to a partnership?

Partnership income is taxed at the same tax rates as the income of corporations.

A partnership must separately report Section 1231 gains and losses rather than including them in ordinary taxable income.

A partner's interest in a partnership is decreased by:

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?

The "at-risk" rule applies, with limited exceptions, to all taxable activities.

Which of the following statements about partnerships is true?

Which of the following is a disadvantage of an LLC?

Income from a partnership is taxed to the partner only if the partner receives the income as a distribution during the year.

Guaranteed payments received from a partnership are included in the income of the partner receiving the payments on a cash basis, without regard to the partnership's tax year.

The Individual Income Tax Return

Gross Income and Exclusions

Business Income and Expenses, Part I

Business Income and Expenses, Part II

Itemized Deductions and Other Incentives

Credits and Special Taxes

Accounting Periods and Methods and Depreciation

Capital Gains and Losses

Withholding, Estimated Payments, and Payroll Taxes

The Corporate Income Tax

Tax Administration and Tax Planning

Filters

Exam 10: Partnership Taxation

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

If Margo and Bruce purchase and operate an ice cream store, for tax purposes they have formed a partnership.

Guaranteed payments made by a partnership must be made to individuals other than partners in the partnership.

A partner contributes assets with a basis of $50,000 and a fair market value of $80,000 to a partnership. What is the basis of the property to the partnership and what is the general rule for the basis of appreciated property contributed to a partnership?

Partnership income is taxed at the same tax rates as the income of corporations.

A partnership must separately report Section 1231 gains and losses rather than including them in ordinary taxable income.

A partner's interest in a partnership is decreased by:

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?

The "at-risk" rule applies, with limited exceptions, to all taxable activities.

Which of the following statements about partnerships is true?

Which of the following is a disadvantage of an LLC?

Income from a partnership is taxed to the partner only if the partner receives the income as a distribution during the year.

Guaranteed payments received from a partnership are included in the income of the partner receiving the payments on a cash basis, without regard to the partnership's tax year.

The Individual Income Tax Return

Gross Income and Exclusions

Business Income and Expenses, Part I

Business Income and Expenses, Part II

Itemized Deductions and Other Incentives

Credits and Special Taxes

Accounting Periods and Methods and Depreciation

Capital Gains and Losses

Withholding, Estimated Payments, and Payroll Taxes

The Corporate Income Tax

Tax Administration and Tax Planning

Filters