Question 1

Elijah contributes securities with a $90,000 FMV (purchased in 2008 at a cost of $50,000)to become a one-third partner in the EJK Partnership on January 1 of the current year.The securities are sold on December 15 of the current year for $105,000.How much of the partnership's capital gain from the sale of these securities should be allocated to Elijah?

Accepted Answer

The answer of Elijah contributes securities with a $90,000 FMV...

Question 2

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

A)  March 1, 2002. 
B)  March 2, 2002. 
C)  June 1 of the current year. 
D)  June 2 of the current year.

Question 3

Explain the tax consequences for both the service partner and the partnership when a contribution of services is made to the partnership.

Accepted Answer

The answer of Explain the tax consequences for both the...

Question 4

Identify which of the following statements is true.

Accepted Answer

A)  The contribution of Sec. 1245 property to a partnership triggers recognition of ordinary income by the contributor at the time of the transfer. 
B)  A partner may not recognize ordinary income when receiving a capital and profits interest in a partnership in exchange for services. 
C)  When a partnership interest is given to a partner in exchange for services, the partnership can deduct or capitalize the FMV of the services, depending on the nature of the services. 
D)  All of the above are false.

Question 5

Identify which of the following statements is true.

Accepted Answer

A)  Distribution of partnership income in the form of cash to partners is generally tax-free to the partners and the partnership. 
B)  When partners receive cash distributions from the partnership, they pay taxes on those distributions. 
C)  If money distributions exceed the partner's basis in the partnership interest, the partner would have to recognize gain on the distribution from the partnership. Such gain is usually an ordinary gain. 
D)  All of the above are true.

Question 6

Identify which of the following statements is true.

Accepted Answer

A)  All of the partners in a limited partnership have limited liability. 
B)  A limited partnership must have at least two general partners. 
C)  A limited partnership cannot have a corporate general partner. 
D)  All of the above are false.

Question 7

What is included in partnership taxable income?

Accepted Answer

The answer of What is included in partnership taxable income?...

Question 8

Doug purchases a 20% interest in the Quix Partnership for $10,000 on January 1,2019,and begins to materially participate in the partnership's business.The Quix Partnership uses the calendar year as its tax year.At the time of the purchase,the Quix Partnership has $4,000 in liabilities,and Doug's share is 20%.What is Doug's basis in his partnership interest on January 1,2010?

Accepted Answer

The answer of Doug purchases a 20% interest in the...

Question 9

When determining the guaranteed payment,which of the following statements is correct?

Accepted Answer

A)  If the distributive share is less than the guaranteed minimum amount, the guaranteed payment is equal to the difference between the distributive share and the guaranteed minimum amount. 
B)  If the distributive share is greater than the guaranteed minimum amount, the guaranteed payment is equal to the difference between the distributive share and the guaranteed minimum amount. 
C)  Guaranteed payments are payments determined with regard to the partnership income. 
D)  The distinction between guaranteed payments and distributive shares is clear in practice.

Question 10

Limited partners must consider the at-risk,basis,and passive loss limitations when determining the amount of their deductible loss.

Accepted Answer

A) True 
 B)False

Question 11

Latoya owns a 10% interest in the ABC Partnership from January 1 through June 30 (the 181st day of the tax year)of the current year (a non-leap year).On July 1,Latoya buys an additional 10% interest in the partnership.The XYZ Partnership's ordinary income is $109,500 and it is earned evenly throughout the year.Latoya's distributive share of the ordinary income is

Accepted Answer

A)  $16,380. 
B)  $16,425. 
C)  $16,470. 
D)  $21,900.

Question 12

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

The answer of When the PDQ Partnership formed,it knew it...

Question 13

Mary and Martha,who had been friends for years,decided to open a retail store to sell kitchen and bath items.In June,they spent $500 looking for a suitable location.They paid an attorney $1,500 to have their partnership agreement drawn up,and they paid an accountant $400 to set up their accounting system.During July,they searched for vendors for the merchandise they planned to carry and stocked their shelves.The store opened in August and was immediately successful.They paid the accountant $300 to prepare an income statement for August.What tax issues should the partnership consider with regard to beginning this business?

Accepted Answer

The answer of Mary and Martha,who had been friends for...

Question 14

Yong contributes a machine having an adjusted basis of $20,000 and an FMV of $25,000 for a 10% partnership interest.Yong had taken $10,000 of depreciation prior to the contribution.The partnership has no liabilities.As a result of the contribution,Yong must recognize

Accepted Answer

A)  no gain or loss. 
B)  a $5,000 Sec. 1245 gain. 
C)  a $5,000 capital gain. 
D)  $10,000 ordinary income.

Question 15

David purchased a 10% capital and profits interest in a partnership this year.He does not participate in the partnership's business.David has no passive income in the current year.His distributive share of the partnership's loss is $40,000 for this year.David's Sec.705 basis in the partnership is $32,000 and his at-risk basis is $16,000 at the end of the current year.How much of the loss can David deduct on his tax return?

Accepted Answer

A)  $0 
B)  $16,000 
C)  $32,000 
D)  $40,000

Question 16

In computing the ordinary income of a partnership,a deduction is allowed for

Accepted Answer

A)  net Sec. 1231 losses. 
B)  bad debts. 
C)  foreign income taxes paid. 
D)  charitable contributions.

Question 17

Brent is a limited 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

Question 18

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 $100,000 in ordinary income.What is Yee's distributive share and her guaranteed payment?

Accepted Answer

A)   
B)   
C)   
D)

Question 19

Formation of a partnership requires legal documentation filed with the Secretary of State.

Accepted Answer

A) True 
 B)False

Question 20

William and Irene each contributed $20,000 cash to the WI Partnership on January 1 of last year.William and Irene share profits and losses equally.Last year,the partnership reported tax-exempt interest income of $4,000.This year,each partner receives $1,000 of the tax-exempt interest income in a cash distribution.There are no partnership liabilities and no other income,loss,contributions,or distributions during both years.William's basis in the partnership interest following these transactions is

Accepted Answer

A)  $19,000. 
B)  $20,000. 
C)  $21,000. 
D)  $22,000.

Exam 9: Partnership Formation and Operation

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

Explain the tax consequences for both the service partner and the partnership when a contribution of services is made to the partnership.

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is true.

What is included in partnership taxable income?

When determining the guaranteed payment,which of the following statements is correct?

Limited partners must consider the at-risk,basis,and passive loss limitations when determining the amount of their deductible loss.

Yong contributes a machine having an adjusted basis of $20,000 and an FMV of $25,000 for a 10% partnership interest.Yong had taken $10,000 of depreciation prior to the contribution.The partnership has no liabilities.As a result of the contribution,Yong must recognize

In computing the ordinary income of a partnership,a deduction is allowed for

Brent is a limited 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?

Formation of a partnership requires legal documentation filed with the Secretary of State.