Question 1

What are the three rules and their order when determining a partnership tax year?

Accepted Answer

First,the partnership tax year will be t

Question 2

On the first day of the partnership's tax year,Karen purchases a 50% interest in a general partnership for $30,000 cash and she materially participates in the operation of the partnership for the entire year.The partnership has $40,000 in recourse liabilities when Karen enters the partnership.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.There is no minimum gain related to the nonrecourse liability.During the year,the partnership incurs a $120,000 loss and a $20,000 increase in liabilities.How much of the loss can Karen report on her tax return for the current year?

Accepted Answer

A) $30,000 
B) $40,000 
C) $50,000 
D) $60,000 
A) $30,000 
B) $40,000 
C) $50,000 
D) $60,000

Question 3

AT Pet Spa is a partnership owned equally by Travis and Ashley.The partnership had the following revenues and expenses this year.Which of the following items are separately stated? Nonseparately stated? What is each partner's distributive share of ordinary income?

Accepted Answer

Separately-stated items are th

Question 4

Identify which of the following statements is true.

Accepted Answer

A) The Fisher Partnership is owned equally by four individual partners.Two of the partners have fiscal years ending March 31 and two partners have fiscal years ending June 30.The partnership has a natural business year.The partnership must adopt a calendar year for tax reporting purposes unless a Sec.444 election is made. 
B) Partnerships make most of the tax elections for the partnership rather than the partners. 
C) A partner can elect the depreciation method to be applied to the partner's share of the partnership's depreciable assets. 
D) All of the above are false. 
A) The Fisher Partnership is owned equally by four individual partners.Two of the partners have fiscal years ending March 31 and two partners have fiscal years ending June 30.The partnership has a natural business year.The partnership must adopt a calendar year for tax reporting purposes unless a Sec.444 election is made. 
B) Partnerships make most of the tax elections for the partnership rather than the partners. 
C) A partner can elect the depreciation method to be applied to the partner's share of the partnership's depreciable assets. 
D) All of the above are false.

Question 5

Jangyoun sells investment land having a $30,000 basis to a partnership in which he has a 60% partnership interest.The partnership pays $26,000 (FMV)for the land.Later,the partnership sells the investment land to a nonpartner for $31,000.On the sale of the land,the partnership must recognize a

Accepted Answer

A) $0 gain or loss. 
B) $1,000 capital gain. 
C) $4,000 capital gain and $1,000 Sec.1231 gain. 
D) $5,000 capital gain. 
A) $0 gain or loss. 
B) $1,000 capital gain. 
C) $4,000 capital gain and $1,000 Sec.1231 gain. 
D) $5,000 capital gain.

Question 6

Identify which of the following statements is true.

Accepted Answer

A) A general partner's share of recourse debt is based on his or her economic risk of loss,and his or her share of nonrecourse debt is predominantly based on his or her share of partnership profits. 
B) A partner's basis for his or her partnership interest is increased by his or her share of the partnership's tax-exempt income. 
C) If all tax-exempt interest income is distributed when received by a partnership,the partners' bases are the same after the distribution as they were before the tax-exempt interest was received by the partnership. 
D) All of the above are true. 
A) A general partner's share of recourse debt is based on his or her economic risk of loss,and his or her share of nonrecourse debt is predominantly based on his or her share of partnership profits. 
B) A partner's basis for his or her partnership interest is increased by his or her share of the partnership's tax-exempt income. 
C) If all tax-exempt interest income is distributed when received by a partnership,the partners' bases are the same after the distribution as they were before the tax-exempt interest was received by the partnership. 
D) All of the above are true.

Question 7

No gain is recognized on the sale of property between a partnership and a more-than-50% partner.

Accepted Answer

A) True 
 B)False

Question 8

What is the tax impact of guaranteed payments on the partner and the partnership?

Accepted Answer

The partner recognizes ordinary income i

Question 9

Matt and Joel are equal partners in the MJ Partnership.For the current year ended December 31,the partnership has book income of $80,000,which includes the following deductions: (1)guaranteed payments (salaries)to partners: Matt,$35,000; and Joel,$25,000; and (2)charitable contributions,$6,000.The book income amount does not include any sales of capital assets or Sec.1231 assets or any tax-exempt income.Based on the above information,what amount should be reported as ordinary income on the partnership return?

Accepted Answer

A) $60,000 
B) $80,000 
C) $86,000 
D) $140,000 
A) $60,000 
B) $80,000 
C) $86,000 
D) $140,000

Question 10

Dan purchases a 25% interest in the Haymarket Partnership for $20,000 on January 1,2010,and begins to materially participate in the partnership's business.The Haymarket Partnership uses the calendar year as its tax year.At the time of the purchase,the Haymarket Partnership has $2,000 in liabilities,and Dan's share is 25%.During the year,the Haymarket Partnership incurs $8,000 in losses and its liabilities increase by $4,000.What is Dan's basis in his partnership interest on December 31,2010?

Accepted Answer

The answer of Dan purchases a 25% interest in the...

Question 11

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

A) a capital loss due to the contribution of $6,000 and a zero basis in the partnership interest. 
B) a capital gain due to the contribution of $6,000 and a zero basis in the partnership interest. 
C) a $34,000 basis in the partnership interest and no gain or loss. 
D) a $43,000 basis in the partnership interest and no gain or loss. 
A) a capital loss due to the contribution of $6,000 and a zero basis in the partnership interest. 
B) a capital gain due to the contribution of $6,000 and a zero basis in the partnership interest. 
C) a $34,000 basis in the partnership interest and no gain or loss. 
D) a $43,000 basis in the partnership interest and no gain or loss.

Question 12

George pays $10,000 for a 20% interest in a general partnership,which has recourse liabilities of $20,000.The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.George's basis in his partnership interest is

Accepted Answer

A) $10,000. 
B) $12,000. 
C) $14,000. 
D) $30,000. 
A) $10,000. 
B) $12,000. 
C) $14,000. 
D) $30,000.

Question 13

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 14

When the PDQ Partnership formed,it knew it had a good product,but it was a bit short on cash.After seeing the product,Jim,a CPA,said that he would set up an accounting system for the partnership in exchange for a 15% profits interest in the partnership.The partners agreed to this,as Jim was receiving only a profits interest and not a capital interest in the partnership.Jim's usual fee for this type of service would be approximately $5,000.What tax issues should Jim and the PDQ Partnership consider with respect to the payment made for the services?

Accepted Answer

• Is the receipt of a profits interest i

Question 15

Identify which of the following statements is true.

Accepted Answer

A) Tax-exempt interest received by a partnership is taxable to the partners if distributed. 
B) Partnership gains and losses from two different casualty and theft occurrences in one year are passed through to the partners as two separate items. 
C) The amount and character of any gains/losses is determined at the partnership level. 
D) All of the above are false. 
A) Tax-exempt interest received by a partnership is taxable to the partners if distributed. 
B) Partnership gains and losses from two different casualty and theft occurrences in one year are passed through to the partners as two separate items. 
C) The amount and character of any gains/losses is determined at the partnership level. 
D) All of the above are false.

Question 16

Brent is a general partner in BC Partnership.His distributive share of partnership income and his guaranteed payment for the year are as follows:   What is his self-employment income?

Accepted Answer

A) $84,000 
B) $66,000 
C) $48,000 
D) $36,000 
A) $84,000 
B) $66,000 
C) $48,000 
D) $36,000

Question 17

ABC Partnership distributes $12,000 to partner Al.Al's distributive share of partnership income is $20,000.Al is taxed on $20,000.

Accepted Answer

A) True 
 B)False

Question 18

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

a)The partnership basis for the two asse

Question 19

When computing the partnership's ordinary income,a deduction is allowed for

Accepted Answer

A) contributions to charitable organizations. 
B) net operating losses. 
C) net short-term capital losses. 
D) guaranteed payments to partners. 
A) contributions to charitable organizations. 
B) net operating losses. 
C) net short-term capital losses. 
D) guaranteed payments to partners.

Question 20

Tracy has a 25% profit interest and a 20% loss interest in the Dupont Partnership.The Dupont Partnership reports the following income and loss items for the current year:
   What is Tracy's distributive share?

Accepted Answer

The partnership has a $105,000 ($110,000

Exam 9: Partnership Formation and Operation

What are the three rules and their order when determining a partnership tax year?

AT Pet Spa is a partnership owned equally by Travis and Ashley.The partnership had the following revenues and expenses this year.Which of the following items are separately stated? Nonseparately stated? What is each partner's distributive share of ordinary income?

Identify which of the following statements is true.

Jangyoun sells investment land having a $30,000 basis to a partnership in which he has a 60% partnership interest.The partnership pays $26,000 (FMV)for the land.Later,the partnership sells the investment land to a nonpartner for $31,000.On the sale of the land,the partnership must recognize a

Identify which of the following statements is true.

No gain is recognized on the sale of property between a partnership and a more-than-50% partner.

What is the tax impact of guaranteed payments on the partner and the partnership?

George pays $10,000 for a 20% interest in a general partnership,which has recourse liabilities of $20,000.The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.George's basis in his partnership interest is

Identify which of the following statements is true.

Brent is a general partner in BC Partnership.His distributive share of partnership income and his guaranteed payment for the year are as follows: What is his self-employment income?

ABC Partnership distributes $12,000 to partner Al.Al's distributive share of partnership income is $20,000.Al is taxed on $20,000.

When computing the partnership's ordinary income,a deduction is allowed for

Tracy has a 25% profit interest and a 20% loss interest in the Dupont Partnership.The Dupont Partnership reports the following income and loss items for the current year: What is Tracy's distributive share?

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