Exam 9: Partnership Formation and Operation

Edward owns a 70% interest in the capital,profits,and losses of the Edward and Moore Partnership.During the year,Edward purchases surplus inventory from the partnership for $5,000.On the date of the sale,the inventory has an adjusted basis to the partnership of $8,000.For the year,the partnership's ordinary income is $50,000 after including the loss on the sale of the inventory to Edward.Assuming that there are no other partnership items to be separately stated,what is Edward's distributive share of the partnership's ordinary income for the year?

Identify which of the following statements is true.

Martin is a limited partner in a card shop.At the end of the partnership's tax year,Martin's basis in the partnership interest is $25,000 ($5,000 cash investment plus a $20,000 share of nonqualified nonrecourse financing).Martin's distributive share of partnership losses for the tax year is $33,000.Martin has $30,000 of passive income this year from other activities.How much of the $33,000 partnership loss can be used by Martin in the year of the loss?

Nicholas,a 40% partner in Nedeau Partnership,gives one-half of his interest to his sister,Michelle.During the current year,Nicholas performs services for the partnership for which reasonable compensation is $80,000,but for which he accepts no pay.Nicholas and Michelle are each credited with a $100,000 distributive share,all of which is ordinary income.What are Nicholas' and Michelle's distributive share?

At the formation of the BD Partnership,Betty contributes land with a basis of $10,000 and an FMV of $30,000 and Dick contributes cash of $30,000.Betty and Dick share profits and losses equally.When the land is sold two years later for $50,000,Betty must recognize a gain of

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?

On January 2 of the current year,Calloway and Taylor contribute cash equally to form the CT Partnership.Calloway and Taylor share profits and losses in a ratio of 75% and 25%,respectively.The partnership's ordinary income for the year was $40,000.Calloway received a distribution of $5,000 during the year.What is Calloway's share of taxable income for the year?

Identify which of the following statements is true.

Identify which of the following statements is true.

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?

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?

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

Identify which of the following statements is true.

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?

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?

Which of the following is false?

Yee manages Huang real estate,a partnership in which she is also a partner.She receives 40% of all partnership income before guaranteed payments,but no less than $80,000 per year.In the current year,the partnership reports $400,000 in ordinary income.What is Yee's distributive share and her guaranteed payment?

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

Dinia has agreed to provide services valued at $30,000 to the L-M Partnership.On January 1 of the current year,she is given a 20% capital and profits interest in the partnership in exchange for her services.The partnership has no liabilities at the time but has assets with a basis of $50,000 and an FMV of $70,000.What are the tax consequences to Dinia and the partnership?

Identify which of the following statements is true.