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At the beginning of the current? year, Barry and Irving formedthe BI Partnership by transferring cash and property to thepartnership in exchange for a partnership? interest, with eachhaving a? 50% interest.? Specifically,Barry transferred propertyhaving a $70,000 ?FMV, a $38,000 adjusted? basis, and subject to a$9,000 ?liability, which the partnership assumed.Irving contributed$35,000 cash to the partnership. The partnership also borrowed$32,000 from the bank to use in its operations. All liabilities arerecourse for which the partners have an equal economic risk ofloss. During the current? year, the partnership earned $26,000 ofnet ordinary income and reinvested this amount in new property.

a.

What is the? partnership's and each? partner's gain or lossrecognized on the formation of the? partnership?

b.

What is each? partner's basis in his or her partnership interestat the end of the current? year?

c.

For the? partnership, prepare a tax and book balance sheet atthe end of the current year.

d.

 Assume instead that Barry andIrving formed a corporation rather than a partnership. What is the?corporation's and each? shareholder's gain or loss recognized onthe formation of the? corporation? What is each? shareholder'sbasis in his or her stock at the end of the current? year?

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Collen Von
Collen VonLv2
28 Sep 2019
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Related questions

Partnerships
Determine whether the following statements are True or False: TRUE FALSE

1. Guaranteed payments to partners do not reduce the ordinary income of the partnership.

2. Non recourse borrowing of a partnership increases threat risk basis of each partner in interest in the partnership.

3. Tax exempt interest income decreases the basis of each partner's interest in the partnership.

4. A partner's basis in a partnership equals the fair market value of the property contributed, plus the partner's share of all liabilities, minus any liability of the partner assumed by the partnership.

5. A capital loss is deductible in order to determine the ordinary income of a partnership.

6. In computing the ordinary income of a partnerships, charitable contributions are not deducted.

7. The passive loss rules apply to a partner in a partnership.


8. A partner does not recognize any income when services are exchanged for a partnership interest.

9. An ordinary loss if fully deductible by a partner without regard to his partnerships basis.

10. The holding period of property acquired by a partnership as a contribution by a partner includes the period during which the property was held by the contributing partner.

11. After the initial formation of a partnership, the partner's basis will decrease by their pro rata share of losses.

12. Under Section 721, when a partner contributes property with a FMV that is higher than the property's adjusted basis, a pre contribution gain is suspended and will be allocated 100% to the contributing partner when the property is sold by the partnership.

13. Under Section 721, the partnership's basis in the contributed property iis the contributors fair market value.

14. Section 1245 gains are separately stated items for a partnership.

15. Under Section 721, if property contributed to a partnership is subject to a liability, a taxable gain may occur which would reduce a partner's basis.

11. Bread Corporation is a C corporation with earnings of $150,000. It paid $60,000 of dividends to its sole shareholder, Gerald. Gerald also owns 100% of Butter, an S Corporation. Butter had net taxable income of $40,000 and made a $30,000 distribution to Gerald. What total income will Gerald report from Bread and Butter’s activities?

$90,000

$190,000

$150,000

$100,000

12. At the first of the year, Arch and Bean contribute cash equally to form the JK partnership. Arch and Bean share profits and losses in a ratio of 75% to 25% respectively. For the current year, the partnership's ordinary income was $40,000. A distribution of $5,000 was made to Arch during the current year. What amount of ordinary income should Bean report from the JK partnership?

$5,000

$20,000

$10,000

$40,000

13. Identify which of the following statements is true.
All cash distributions from a partnership require the partners to pay taxes on those distributions.

Distribution of partnership income in the form of cash to partners is generally taxable to the

partners as long as there is sufficient basis.

If property distributions exceed the partner's basis in the partnership interest, a partner would not have to recognize gain on a distribution from the partnership.

All of the above are true.

14. Stan had a basis in his 50% partnership interest at the beginning of this year of $20,000 in a partnership in which he actively participates. There was no change in partnership liabilities during the year. The partnership's ordinary loss this year was $60,000 and the partnership had no separately stated items. The deductible loss from the partnership reported on Stan's personal income tax return this year is

$20,000

$0


$60,000

$30,000

15. The Qualified Business Income Deduction applies to individuals who own an interest in a:

C Corporation

Both a Partnership and an S Corporation

A partnership

S Corporation

Carter Pearson is a partner in Event Promoters. His beginningpartnership capital balance for the current year is $55,500, andhis ending partnership capital balance for the current year is$62,500. His share of this year's partnership income was $5,750.What is his partner return on equity?

9.65%

9.75%

10.87%

9.20%

10.36%

Design Services is organized as a limited partnership, with MikoToori as one of its partners. Miko's capital account began the yearwith a balance of $46,900. During the year, Miko's share of thepartnership income was $9,400, and Miko received $5,900 indistributions from the partnership. What is Miko's partner returnon equity?

12.1%

19.3%

12.6%

20.0%

18.7%

The following information isavailable regarding Grace Smit's capital account in EnterpriseConsulting Group, a general partnership, for a recent year:


Beginning of theyear balance $ 30,000
Share of partnershipincome $ 10,500
Withdrawals madeduring the year $ 6,800

What is Smit's partner return onequity during the year in question?

33.0%

11.6%

51.3%

12.3%

31.2%

Maxwell and Smart are forming a partnership. Maxwell isinvesting a building that has a market value of $81,000. However,the building carries a $55,000 mortgage that will be assumed by thepartnership. Smart is investing $22,000 cash. The balance ofMaxwell's Capital account will be:

$55,000.

$81,000.

$59,000.

$26,000.

$48,000.

Harvey and Quick have decided to form a partnership. Harvey isgoing to contribute a depreciable asset to the partnership as hisequity contribution to the partnership. The following informationregarding the asset to be contributed by Harvey is available:

Historical cost ofthe asset $81,000
Accumulateddepreciation on the asset $42,500
Note payable securedby the asset* $23,000
Agreed-upon marketvalue of the asset $47,500
*willbe assumed by the partnership
Based on this information,Harvey's beginning equity balance in the partnership will be:

$23,000

$47,500

$81,000

$38,500

$24,500

Wheadon, Davis, and Singer formed a partnership with Wheadoncontributing $58,800, Davis contributing $49,000 and Singercontributing $39,200. Their partnership agreement called for theincome (loss) division to be based on the ratio of capitalinvestments. If the partnership had income of $72,000 for its firstyear of operation, what amount of income (rounded to the nearestthousand) would be credited to Singer's capital account?

$19,200.

$28,800.

$72,000.

$24,000.

$39,200.

Christie and Jergens formed a partnership with capitalcontributions of $210,000 and $310,000, respectively. Theirpartnership agreement calls for Christie to receive a $51,000 peryear salary. Also, each partner is to receive an interest allowanceequal to 9% of a partner's beginning capital investments. Theremaining income or loss is to be divided equally. If the netincome for the current year is $117,000, then Christie andJergens's respective shares are:

$58,500; $58,500.

$69,900; $27,900.

$47,250; $69,750.

$79,500; $37,500.

$38,100; $78,900.

The partnership agreement for Wilson, Pickett & Nelson, ageneral partnership, provided that profits be shared between thepartners in the ratio of their financial contributions to thepartnership. Wilson contributed $90,000, Pickett contributed$54,000 and Nelson contributed $18,000. In the partnership's firstyear of operation, it incurred a loss of $207,000. What amount ofthe partnership's loss, rounded to the nearest dollar, should beabsorbed by Nelson?

$0

$23,000

$69,000

$103,500

$51,750

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