ACC 331 - Ch 15 SmartBook

Agatha contributes land valued at $25,000 (basis = $5,000) subject to a mortgage of $15,000 to the Kristy Partnership for a 50% interest. What is Agatha's gain or loss on the contribution?

$0

Victoria contributes cash of $10,000 in exchange for a partnership interest. In the first year, her share of dividends, tax-exempt income and ordinary business loss are $2,000, $1,000 and ($4,000), respectively. The partnership also makes a cash distribution to her of $10,000. What is Victoria's adjusted basis at the end of the year?

$0

Katie contributes property with a value of $40,000 and adjusted basis of $30,000 to the Parry Partnership in exchange for her partnership interest. Parry Partnership has no debt. What is Katie's basis in her partnership interest?

$30,000

Miguel received a guaranteed payment of $14,000 from Yorba Linda Partnership, a business partnership in which he is a general partner. In addition, he was allocated $18,000 of ordinary business income from Yorba Linda. Miguel also has an ownership interest in Calexico LLC. Calexico paid Miguel a guaranteed payment of $3,000 and allocated $0 of ordinary business income to Miguel. How much self-employment income does Miguel have in total from Yorba Linda and Calexico?

$35,000

Bunny provides deductible consulting services to Egg Partnership and receives a capital interest with a liquidation value of $50,000 (no profits interest). What is the tax treatment to Bunny and to Egg?

$50,000 ordinary income to Bunny and $50,000 deduction to Egg

Bunny provides deductible consulting services worth $40,000 to Egg Partnership and receives a profits interest (no capital interest). What is the tax treatment to Bunny and to Egg?

No income to Bunny and no deduction for Egg

Taylor Partnership is a general partnership with 3 equal partners. In the current year, Taylor generated taxable business income of $3,000 and made $0 distributions to its partners. How will the $3,000 be taxed for Federal income tax purposes?

No tax at the partnership level and all $3,000 taxed at the partner level.

Match the type of partnership debt with its description. Recourse debt Nonrecourse debt

Recourse debt --> Debt that partners are at risk to pay with their own money. Nonrecourse debt --> Debt that partners are required to pay from the profits of the partnership that is often secured by partnership property.

Which of the following is NOT a separately stated item?

Sales revenue less costs of goods sold

On January 1, 20X1, Glenda contributes $10,000 cash to the Ruby Partnership in exchange for a partnership interest. What is Glenda's holding period in her Ruby interest on February 1, 20X1?

Short-term

Duncan has land that he purchased 5 years ago and equipment that he purchased this month. The land was held as an investment and the equipment was personal-use. He contributes both to the DoNut Partnership for use in a new partnership business in exchange for a partnership interest. What is the character of the property to DoNut?

Since DoNut will be using the land and equipment in a trade or business, it will be ordinary and then 1231 after one year.

Match the capital account type with the description. Tax capital accounts GAAP capital accounts 704(b) capital accounts

Tax capital accounts --> Reflects the tax basis of the contributed assets GAAP capital accounts --> Reflects the generally accepted accounting approach to capital accounts 704(b) capital accounts --> Reflects the fair market value of the contributed assets

Newly formed Chasbro Partnership is preparing its first tax return. Who makes the election to expense a portion of the partnership's start-up costs?

The partnership

Eddie contributed $60,000 cash to Howling LLC in exchange for a 50% member interest. Howling immediately borrowed $50,000 of nonrecourse debt. What is Eddie's tax basis in Howling?

$85,000

Victoria contributes cash of $20,000 in exchange for a partnership interest. In the first year, her share of dividends, tax-exempt income and ordinary business loss are $2,000, $1,000 and ($4,000), respectively. The partnership also makes a cash distribution to her of $10,000. What is Victoria's adjusted basis at the end of the year?

$9,000

Which of the following are generally flow-through entities?

-Limited liability company -Limited partnership -S corporation

Which of the following are characteristics of recourse partnership debt?

-Partners have ultimate responsibility for paying out of their own pockets -Generally allocated to partners ultimately responsible for paying it

Partnership allocations of income and loss should:

-have substantial economic effect. -be defined in the partnership agreement.

Partnership income tax returns are due:

15th day of the 3rd month after year end

Which of the following BEST describes a Form K-1?

A schedule prepared for each partner listing his or her individual share of the partnership's ordinary income/loss and separately stated items

Which of the following is NOT a decrease to basis in a partnership interest?

An increase in the partner's share of the debt of the partnership

Murtaugh decides he is ready to leave the LW Partnership and sells his interest (basis = $30,000) to Riggs for $75,000. Murtaugh was an original partner in LW when it was formed 5 years ago. LW has no debt. What is Rigg's basis and holding period in his newly acquired LW interest?

Basis = $75,000; holding period begins at date of purchase

Bobby contributes land with a value of $10,000 and an adjusted basis of $2,000 to the Harwell Partnership. What are Bobby's and Harwell's recognized gains/losses?

Bobby's gain = $0; Harwell's gain = $0

How does a partnership adopt an overall method of accounting for tax purposes?

By filing a tax return

Which of the following is NOT a flow-through entity?

C corporation

Partnerships with Blank______as partners are generally not eligible to use the cash method of accounting for tax purposes.

C corporations

Match the description of a partner's rights with the term. Capital interest Profits interest Partnership interest

Capital interest --> Partner's right to the net assets of the partnership at liquidation Profits interest --> Partner's right to the share of future income or losses of the partnership Partnership interest --> The bundle of economic rights a partner receives for his investment in a partnership

Match the service partner's tax treatment based on the type of partnership interest received in exchange. Capital interest received Profits interest received

Capital interest received --> Service partner recognizes ordinary income for the liquidation value of the partnership received Profits interest received --> Service partner does NOT immediately recognize ordinary income for value of partnership interest received

Which of the following is NOT an increase to a partner's adjusted basis in a partnership interest?

Cash distributions paid from the partnership to the partner

Match the federal tax form with the description. Form 1065 Form 7004 Schedule K

Form 1065 --> Entity level return reporting partnership income Form 7004 --> Form to request 6-month extension to file Form 1065 Schedule K --> Part of Form 1065 that lists ordinary income and all separately stated items at the entity level

Match the type of partner with self-employment tax treatment. General partner's guaranteed payment Limited partner's share of ordinary income LLC managing member's share of ordinary business income

General partner's guaranteed payment --> Always treated as self-employment income Limited partner's share of ordinary income --> Not treated as self-employment income LLC managing member's share of ordinary business income --> Varies, with some treating as self-employment income and others not

A partner's share of excess (disallowed) business interest expense of a partnership:

Is reported to the partner and reduces the partner's outside basis.

Snap Inc. and Crackle Corp. own a capital and profits interest in the Cereal Bowl Partnership of 20% and 25%, respectively. There are another 35 partners, all with interests of less than 5%. Snap and Crackle have a June 30 year-end and the 35 other partners have various fiscal year ends. What year end must Cereal Bowl use?

June 30

Lawrence and Mohammed (50% partners) invited Frizz to join their partnership. Frizz provided services in exchange for a capital interest with a liquidation value of $10,000. What is the effect of this exchange on the tax basis of each partner?

Lawrence decreased by $5,000, Mohammed decreased by $5,000, Frizz increased by $10,000.

Duncan has land that he purchased 5 years ago and equipment that he purchased this month. He contributes both to the DoNut Partnership in exchange for a partnership interest. What is DoNut's holding period for each asset?

Long-term for the land and short-term for the equipment; the holding period for both assets carries over from the partner.

Billy contributes equipment used in a trade or business that he has held for more than 1 year to a partnership in exchange for a partnership interest. What is Billy's holding period immediately after the transfer and one year plus one day later?

Long-term immediately and long term after the year

Trixie (an individual), Speed Corp. and Pops, Inc. each own a capital and profits interest in Mock Five Partnership of 30%, 40% and 40%, respectively. Trixie has a calendar year-end, Speed has a May 31 year-end and Pops has an August 31 year-end. What year-end must Mock Five use?

May 31

Which of the following are recognized by the partner on the contribution of property to a partnership by a partner?

Neither built-in gains nor losses

True or false: Contributions of property to a partnership generally result in the same type of deferral available to a sole shareholder's contribution of property to a corporation.

True

True or false: If a partnership has debt, the debt generally serves to increase the partner's outside basis.

True

True or false: Partnerships are required to file tax returns even though they do NOT pay tax.

True

A partner that provides services to a partnership can receive Blank______ in exchange for his or her contribution of services.

both a capital and/or profits interest

Partnerships are taxed under:

both the entity and aggregate approach

A partnership interest represents a(n):

bundle of rights granted to partners through a partnership agreement

A partner's interest in a partnership interest is treated as a(n):

capital asset

Brenda is entitled to a 10% share of the net assets of the GTC Partnership if it were to liquidate. Brenda's right can be described as

capital interest

Entities taxed as partnerships track the equity of their owners using a(n) ____ ____ for each owner.

capital; account

Partners are taxed on partnership income when it is:

earned by the partnership

Partners are informed of their share of a partnership's income by:

examining the information return (Schedule K-1) that the partnership prepares for them

A partnership's basis in its own assets is known as the ____ basis.

inside

Consistent with other types of entities, partnerships with gross receipts exceeding a certain threshold must use the accrual method for the purchase and sale of ____.

inventory, merchandise, or inventories

The tax law relating to the selection of a tax year-end for partnerships generally requires the partnership to adopt a tax year with the

least aggregate deferral

Guaranteed payments for services are treated as ____ (ordinary or capital) income by the partners that receive them.

ordinary

A partner's basis in his or her partnership interest is known as ____ basis.

outside

A partner contributes property or services in exchange for the general ownership interest called a(n) ____ ____.

partnership; interest

A partner's share of capital gains are not included in when calculating the ____ ____ ____ deduction, but must be included for calculating the ____ ____ income tax.

qualified; business; income; net; investment

Clark is preparing to contribute property with a value of $5,000 and basis of $20,000 to a partnership. A better tax alternative is to:

sell the property, recognize the loss and contribute the cash from the sale

Guaranteed payments for services are

separately stated items and deducted from ordinary business income or loss.

A partner's tax basis in his or her partnership interest is increased by the:

tax basis of the property contributed

Match the acquisition method with the outside basis. Contribution of property Contribution of services Purchase

Contribution of property --> Outside basis = basis of contributed property - debt relief + debt allocated + gain recognized Contribution of services --> Outside basis = liquidation value of capital interest + debt allocated Purchase --> Cost basis + debt allocated

Wynk (an individual), Blynk (an individual) and Nod Corp. are each partners in the Wooden Shoe Partnership with ownership interests of 30%, 30% and 40%, respectively. As individuals, Wynk and Blynk have a calendar year-end, but Nod Corp has a March 31st year-end. What year-end must Wooden Shoe use?

December 31

Nadia contributed cash of $20,000 to form the USSR Partnership. At the same time, Elena contributed land worth $20,000 (her basis was $5,000 at the time of contribution). They both received a 50% capital and profits interest. Shortly after the partnership was formed, USSR sold the land for $22,000. How is the gain on the sale of the land allocated to the partners?

Elena $16,000; Nadia $1,000

Match the tax approach with the description. Entity approach Aggregate approach

Entity approach --> Taxes the entity separate from the owners Aggregate approach --> Treats the entity as an aggregation of owner's interests