Question 1

Match each of the following statements with the terms below that provide the best definition.
-Entity concept

Accepted Answer

A)  Organizational choice of many large accounting firms.
B)  Partner's percentage allocation of current operating income.
C)  Might affect any two partners' tax liabilities in different ways.
D)  Brokerage and registration fees incurred for promoting and marketing partnership interests.
E)  Transfer of asset to partnership followed by immediate distribution of cash to partner.F) Must have at least one general and one limited partner.G) All partners are jointly and severally liable for entity debts.H) Theory treating the partner and partnership as separate economic units.I) Partner's basis in partnership interest after tax­free contribution of asset to partnership.J) Partnership's basis in asset after tax­free contribution of asset to partnership.K) Owners are "members."L) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.M) Allows many unincorporated entities to select their Federal tax status.N) No correct match provided.O) E) and G)
P) I) and K)

Question 2

Binita contributed property with a basis of $40,000 and a value of $50,000 to the BE Partnership in exchange for a 20% interest in partnership capital and profits. During the first year of partnership operations, BE had net taxable income of $30,000 and tax-exempt interest income of $10,000. The partnership distributed $10,000 cash to Binita. Binita's adjusted basis (outside basis)  for her partnership interest at year­end is:

Accepted Answer

A)   $36,000.
B)   $38,000.
C)   $60,000.
D)   $70,000.
E)   None of the above.F) A) and E)
G) A) and C)

Question 3

Carli contributes land to the newly formed CD Partnership in exchange for a 30% interest. The land has an adjusted basis and fair market value of $300,000 and is subject to a liability of $100,000, which the partnership assumes. None of this liability is repaid at year-end. At the end of the year, the partnership has trade accounts payable of $20,000. Assume all liabilities are allocated proportionately to the partners. Total partnership income for the year is $400,000. What is Carli's basis in her partnership interest at the end of the year?

Accepted Answer

Carli's basis in the partnership interes...

Question 4

Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

Accepted Answer

A) True 
 B)False

Question 5

A partnership is an association formed by two or more taxpayers (who may be any type of entity) to carry on a trade or business.

Accepted Answer

A) True 
 B)False

Question 6

Alicia and Barry form the AB Partnership at the start of the current year with a land contribution by Barry and a cash contribution by Alicia. Barry's contributed property is subject to a recourse mortgage assumed by the partnership. Barry has an 80% interest in AB's profits and losses. The land has been held by Barry for the past 6 years as an investment. It will be used by AB as an operating asset in its parking lot business. Which of the following statements is correct?

Accepted Answer

A)   Immediately after formation, Alicia's basis in the partnership equals the cash contributed by Alicia.
B)   Immediately after formation, Alicia's basis in the partnership equals the cash she contributed plus her shareOf the recourse debt contributed by Barry.
C)   Because the debt is recourse, the constructive liquidation scenario is not applicable for determining the allocation of debt to the partners.
D)   AB's basis in the land contributed by Barry equals Barry's basis in the land immediately before theContribution date, less the amount of the recourse debt assumed by the partnership.
E)   None of the above.F) All of the above
G) B) and E)

Question 7

Match each of the following statements with the terms below that provide the best definition.
-Foreign tax credit or deduction

Accepted Answer

A)  Adjusted basis of each partnership asset.
B)  Operating expenses incurred after entity is formed but before it begins doing business.
C)  Each partner's basis in the partnership.
D)  Reconciles book income to "taxable income."
E)  Tax accounting election made by partnership.F) Tax accounting calculation made by partner.G) Tax accounting election made by partner.H) Does not include liabilities.I) Designed to prevent excessive deferral of taxation of partnership income.J) Amount that may be received by partner for performance of services for the partnership.K) Computation that determines the way recourse debt is shared.L) Will eventually be allocated to partner making tax-free property contribution to partnership.M) Partner's share of partnership items.N) Must generally be satisfied by any allocation to the partners.O) Justification for a tax year other than the required taxable year.P) No correct match is provided.Q) E) and K)
R) I) and J)

Question 8

Match each of the following statements with the terms below that provide the best definition.
-Constructive liquidation scenario

Accepted Answer

A)  Adjusted basis of each partnership asset.
B)  Operating expenses incurred after entity is formed but before it begins doing business.
C)  Each partner's basis in the partnership.
D)  Reconciles book income to "taxable income."
E)  Tax accounting election made by partnership.F) Tax accounting calculation made by partner.G) Tax accounting election made by partner.H) Does not include liabilities.I) Designed to prevent excessive deferral of taxation of partnership income.J) Amount that may be received by partner for performance of services for the partnership.K) Computation that determines the way recourse debt is shared.L) Will eventually be allocated to partner making tax-free property contribution to partnership.M) Partner's share of partnership items.N) Must generally be satisfied by any allocation to the partners.O) Justification for a tax year other than the required taxable year.P) No correct match is provided.Q) M) and P)
R) B) and H)

Question 9

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate form?

Accepted Answer

A)   A partnership typically has easier administrative and filing requirements than does a C corporation.
B)   Partnership income is subject to a single level of taxation; corporate income is double taxed.
C)   Partnerships may specially allocate income and expenses among the partners, provided the substantial economic effect requirements are met; corporate dividends must be proportionate to shareholdings.
D)   Partners in a general partnership have less personal liability for entity claims than shareholders of a C corporation.
E)   All of the above are advantages of partnership taxation.F) A) and E)
G) B) and C)

Question 10

Jeordie and Kendis created the JK Partnership by contributing $100,000 each. The $200,000 cash was used by the partnership to acquire a depreciable asset. The partnership agreement provides that the partners' capital accounts will be maintained in accordance with Reg. § 1.704­1(b) (the "economic effect" Regulations) and that any partner with a deficit capital account will be required to restore that capital account when the partner's interest is liquidated. The partnership agreement provides that MACRS will be allocated 20% to Jeordie and 80% to Kendis. All other items of partnership income, gain, loss, deduction, and credit will be allocated equally between the partners. In the first year, MACRS is $40,000 and no other operating transactions occur. The property is sold at the end of the year for $160,000 and the partnership is liquidated immediately thereafter.
To satisfy the economic effect test, how much of the $160,000 cash (from the sale) is allocated each to Jeordie and Kendis?

Accepted Answer

Distributions upon liquidation must foll...

Question 11

The MOG Partnership reports ordinary income of $60,000, long-term capital gain of $12,000, and tax-exempt income of $12,000. The partnership agreement provides that Molly will receive all long-term capital gains and George will receive all tax-exempt interest income. Their allocation of ordinary income will be reduced accordingly, and Olivia will be allocated a proportionately greater share of ordinary income. (In other words, each partner will receive allocations totaling 1/3 of the total $84,000 of partnership income.) This allocation was agreed upon because Molly and George are in a high marginal tax bracket and Olivia is in a low marginal tax bracket.
a. Describe the elements that must be included in a partnership agreement in order for an allocation to have "economic effect."
b. Discuss whether or not the MOG allocation would be permitted and provide your reasoning.

Accepted Answer

a. For partnership allocations to meet t...

Question 12

Alyce owns a 30% interest in a continuing partnership. The partnership distributes a $35,000 year-end cash payment to Alyce. In a proportionate nonliquidating distribution, the partnership also distributed property (basis of $20,000, fair market value of $30,000)  to Alyce. Immediately before the distributions of cash and property, Alyce's basis in the partnership interest was $60,000. As a result of the distribution, Alyce recognizes:

Accepted Answer

A)   No gain or loss.
B)   Ordinary loss of $5,000.
C)   Capital loss of $5,000.
D)   Ordinary gain of $5,000.
E)   Capital gain of $5,000.F) A) and B)
G) C) and D)

Question 13

Tara and Robert formed the TR Partnership four years ago. Because they decided the company needed some expertise in multimedia presentations, they offered Katie a 1/3 interest in partnership capital if she would come to work for the partnership. She will also receive a 25% interest in future partnership profits. On July 1 of the current year, the unrestricted partnership capital interest (fair market value of $25,000)  was transferred to Katie. How should Katie treat the receipt of the partnership interest in the current year?

Accepted Answer

A)   Nontaxable.
B)   $25,000 ordinary income.
C)   $25,000 short-term capital gain.
D)   $25,000 long-term capital gain.
E)   None of the above.F) D) and E)
G) C) and E)

Question 14

Michelle receives a proportionate liquidating distribution when the basis of her partnership interest is $50,000. The distribution consists of $58,000 cash and noninventory property (adjusted basis to the partnership of $10,000 and fair market value of $12,000) . The partnership has no hot assets. How much gain or loss does Michelle recognize, and what is her basis in the distributed property?

Accepted Answer

A)   $0 gain or loss; $0 basis in property.
B)   $0 gain or loss; $50,000 basis in property.
C)   $8,000 ordinary income; $0 basis in property.
D)   $8,000 capital gain; $10,000 basis in property.
E)   $8,000 capital gain; $0 basis in property.F) A) and B)
G) C) and D)

Question 15

Items that are not required to be shown on the partners' Schedules K­1 include AMT adjustments and preferences
and taxes paid to foreign countries, as AMT and the foreign tax credit are calculated by the partnership.

Accepted Answer

A) True 
 B)False

Question 16

Match each of the following statements with the terms below that provide the best definition.
-Organizational costs

Accepted Answer

A)  Adjusted basis of each partnership asset.
B)  Operating expenses incurred after entity is formed but before it begins doing business.
C)  Each partner's basis in the partnership.
D)  Reconciles book income to "taxable income."
E)  Tax accounting election made by partnership.F) Tax accounting calculation made by partner.G) Tax accounting election made by partner.H) Does not include liabilities.I) Designed to prevent excessive deferral of taxation of partnership income.J) Amount that may be received by partner for performance of services for the partnership.K) Computation that determines the way recourse debt is shared.L) Will eventually be allocated to partner making tax-free property contribution to partnership.M) Partner's share of partnership items.N) Must generally be satisfied by any allocation to the partners.O) Justification for a tax year other than the required taxable year.P) No correct match is provided.Q) N) and P)
R) D) and F)

Question 17

Which of the following statements is true regarding the sale of a partnership interest?

Accepted Answer

A)   The selling partner's share of partnership liabilities is disregarded in determining the proceeds from the sale of a partnership interest.
B)   For purposes of computing the selling partner's gain or loss, the partner's basis in the partnership interest is determined as of the last day of the partnership tax year ending before the year in which the interest is sold.
C)   If a partner sells an interest in a partnership, income related to that interest for the year of the sale is allocated to the purchaser.
D)   The selling partner could be required to report both ordinary income and a capital loss on sale of the partnership interest.
E)   The partner's share of partnership "hot assets" is disregarded in determining the character of the partner's gain on the sale of the partnership interest.F) C) and E)
G) B) and C)

Question 18

Paul sells one parcel of land (basis of $100,000)  for its fair market value of $160,000 to a partnership in which he owns a 60% capital interest. Paul held the land for investment purposes. The partnership is in the real estate development business, and will build residential housing (for sale to customers)  on the land. Paul will recognize:

Accepted Answer

A)   $0 gain or loss.
B)   $36,000 ordinary income.
C)   $36,000 capital gain.
D)   $60,000 ordinary income.
E)   $60,000 capital gain.F) A) and D)
G) D) and E)

Question 19

An examination of the RB Partnership's tax books provides the following information for the current year:
 $\begin{array}{lr}
\text { Operating (ordinary) income before guaranteed payments } & \$ 300,000 \
\text { Long-term capital gain } & 6,000 \
\text { Guaranteed payment to Rachel for services } & 30,000 \
\text { Cash distributions to each partner } & 20,000\
\text {Interest on Colorado state bonds (exempt interest income)}&2,000\
\text {Charitable contributions made by partnership}&10,000\
\text {Decrease in partnership liabilities from $ 1 / 1-12 / 31 $}&(20,000)
\end{array}$ 
Rachel is a 30% general partner in partnership capital, profits, and losses. Assume the adjusted basis of her partnership interest is $60,000 at the beginning of the year, and she shares in 30% of the partnership's liabilities for basis purposes.
a. What is Rachel's adjusted basis for the partnership interest at the end of the year?
b. How much income must Rachel report on her tax return for the current year? What is the character of the income and what types of tax might apply to it?

Accepted Answer

a. Rachel's adjusted basis for her partn...

Question 20

Match each of the following statements with the terms below that provide the best definition.
-§ 179 deduction

Accepted Answer

A)  Adjusted basis of each partnership asset.
B)  Operating expenses incurred after entity is formed but before it begins doing business.
C)  Each partner's basis in the partnership.
D)  Reconciles book income to "taxable income."
E)  Tax accounting election made by partnership.F) Tax accounting calculation made by partner.G) Tax accounting election made by partner.H) Does not include liabilities.I) Designed to prevent excessive deferral of taxation of partnership income.J) Amount that may be received by partner for performance of services for the partnership.K) Computation that determines the way recourse debt is shared.L) Will eventually be allocated to partner making tax-free property contribution to partnership.M) Partner's share of partnership items.N) Must generally be satisfied by any allocation to the partners.O) Justification for a tax year other than the required taxable year.P) No correct match is provided.Q) A) and N)
R) B) and O)

Exam 21: Partnerships

Correct Answer
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Carli's basis in the partnership interes...
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Match each of the following statements with the terms below that provide the best definition. -Organizational costs

Correct Answer
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Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

Correct Answer
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Match each of the following statements with the terms below that provide the best definition. -Constructive liquidation scenario

Correct Answer
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Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate form?

Correct Answer
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A partnership is an association formed by two or more taxpayers (who may be any type of entity) to carry on a trade or business.

Correct Answer
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Correct Answer
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a. Rachel's adjusted basis for her partn...
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Match each of the following statements with the terms below that provide the best definition. -Foreign tax credit or deduction

Correct Answer
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Distributions upon liquidation must foll...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a. For partnership allocations to meet t...
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Match each of the following statements with the terms below that provide the best definition. -Entity concept

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Items that are not required to be shown on the partners' Schedules K1 include AMT adjustments and preferences and taxes paid to foreign countries, as AMT and the foreign tax credit are calculated by the partnership.

Correct Answer
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Match each of the following statements with the terms below that provide the best definition. -§ 179 deduction

Correct Answer
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Which of the following statements is true regarding the sale of a partnership interest?

Correct Answer
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Exam 21: Partnerships

Correct AnswerverifiedCarli's basis in the partnership interes...View AnswerShow Answer

Match each of the following statements with the terms below that provide the best definition. -Organizational costs

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Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.

Correct AnswerverifiedShow Answer

Match each of the following statements with the terms below that provide the best definition. -Constructive liquidation scenario

Correct AnswerverifiedShow Answer

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate form?

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A partnership is an association formed by two or more taxpayers (who may be any type of entity) to carry on a trade or business.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answerverifieda. Rachel's adjusted basis for her partn...View AnswerShow Answer

Match each of the following statements with the terms below that provide the best definition. -Foreign tax credit or deduction

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Correct AnswerverifiedDistributions upon liquidation must foll...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answerverifieda. For partnership allocations to meet t...View AnswerShow Answer

Match each of the following statements with the terms below that provide the best definition. -Entity concept

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Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Items that are not required to be shown on the partners' Schedules K­1 include AMT adjustments and preferences and taxes paid to foreign countries, as AMT and the foreign tax credit are calculated by the partnership.

Correct AnswerverifiedShow Answer

Match each of the following statements with the terms below that provide the best definition. -§ 179 deduction

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Which of the following statements is true regarding the sale of a partnership interest?

Correct AnswerverifiedShow Answer

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Carli's basis in the partnership interes...
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a. Rachel's adjusted basis for her partn...
View Answer

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Correct Answer
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Distributions upon liquidation must foll...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a. For partnership allocations to meet t...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Items that are not required to be shown on the partners' Schedules K1 include AMT adjustments and preferences and taxes paid to foreign countries, as AMT and the foreign tax credit are calculated by the partnership.

Correct Answer
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Correct Answer
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Correct Answer
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