Question 1

Tom and William are equal partners in the TW Partnership. Just before TW liquidated, Tom's capital account balance was $50,000 and William's capital account balance was $30,000. To meet the substantial economic effect requirements, any liquidating cash distribution must be allocated in proportion to those ending capital account balances.

Accepted Answer

A) True 
 B)False

Question 2

A partner will have the same profit-sharing, loss-sharing, and capital-sharing ownership percentages.

Accepted Answer

A) True 
 B)False

Question 3

Syndication costs arise when partnership interests are being marketed to investors. These costs cannot be amortized or deducted.

Accepted Answer

A) True 
 B)False

Question 4

A partnership must provide any information to the partners that the partners would need to calculate deductions not permitted at the partnership level, such as for oil and gas depletion or the corporate dividends received deduction.

Accepted Answer

A) True 
 B)False

Question 5

Which one of the following is not shown on the partnership's Schedule K on Page 4 of Form 1065?

Accepted Answer

A)   The partnership's self-employment income.
B)   The partnership's separately stated income and deductions.
C)   The partnership's tax preference and adjustment items.
D)   The partnership's net operating loss carryforward.
E)   All of the above.F) None of the above
G) B) and C) D

Question 6

Partners' capital accounts should be determined using the same method on Form 1065 Schedule L, Form 1065 Schedule M-2, and the Schedules K-1 prepared for the partners.

Accepted Answer

A) True 
 B)False

Question 7

Match each of the following statements with the terms below that provide the best definition
-Inside basis

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) I) and J)
R) A) and P)

Question 8

Match each of the following statements with the terms below that provide the best definition
-Separately stated item

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 tax-free contribution of asset to partnership.J) Partnership's basis in asset after tax-free 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) H) and L)
P) D) and I) C

Question 9

The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses to determine the partnership's equivalent of "taxable income." This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

Accepted Answer

A) True 
 B)False

Question 10

On the formation of a partnership, when might a "disguised sale" occur? How can this treatment be avoided?

Accepted Answer

A disguised sale might occur when a part...

Question 11

A partnership's allocations of income and deductions to the partners are required to be proportionate to the partners' percentage ownership of partnership capital in order to meet the substantial economic effect tests.

Accepted Answer

A) True 
 B)False

Question 12

The "inside basis" is defined as a partner's basis in the partnership interest.

Accepted Answer

A) True 
 B)False

Question 13

Harry's basis in his partnership interest was $10,000 at the beginning of the tax year. For the year, his share of the partnership's loss was $8,000, and he also received a distribution of $4,000. Harry can deduct an $8,000 loss, and he recognizes a gain of $2,000 on the distribution of cash in excess of his remaining basis.

Accepted Answer

A) True 
 B)False

Question 14

An example of the "aggregate concept" underlying partnership taxation is the fact that the partners (rather than the partnership) pay tax on partnership income.

Accepted Answer

A) True 
 B)False

Question 15

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

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 tax-free contribution of asset to partnership.J) Partnership's basis in asset after tax-free 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) D) and M)
P) E) and I) D

Question 16

Julie and Kate form an equal partnership during the current year. Julie contributes cash of $160,000, and Kate contributes property (adjusted basis of $90,000, fair market value of $260,000) subject to a nonrecourse liability of $100,000. As a result of these transactions, Kate has a basis in her partnership interest of $40,000.

Accepted Answer

A) True 
 B)False

Question 17

George received a fully-vested 10% interest in partnership capital and a 20% interest in future partnership profits in exchange for services rendered to the GHP, LLC (not a publicly-traded partnership interest). The future profits of the partnership are subject to normal operating risks. George will report ordinary income equal to the fair market value of the profits interest, but the capital interest will not be currently taxed to him.

Accepted Answer

A) True 
 B)False

Question 18

On a corporate Form 1120, Schedule M-1 (or M-3) is used to reconcile book and tax income, and Schedule M-2 reconciles retained earnings to the amounts shown on Schedule L. How are these reconciliations accomplished on a partnership return? What additional information must be provided?

Accepted Answer

A partnership is not a taxpaying entity ...

Question 19

If a partnership earns tax-exempt income, the income should not affect the partners' bases in their partnership interests. Do you agree with this statement? Explain.

Accepted Answer

Partnership income is intended to be sub...

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 10: Partnerships: Formation, Operation, and Basis

Correct Answer
verified

A partner will have the same profit-sharing, loss-sharing, and capital-sharing ownership percentages.

Correct Answer
verified

Syndication costs arise when partnership interests are being marketed to investors. These costs cannot be amortized or deducted.

Correct Answer
verified

A partnership must provide any information to the partners that the partners would need to calculate deductions not permitted at the partnership level, such as for oil and gas depletion or the corporate dividends received deduction.

Correct Answer
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Which one of the following is not shown on the partnership's Schedule K on Page 4 of Form 1065?

Correct Answer
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D

Partners' capital accounts should be determined using the same method on Form 1065 Schedule L, Form 1065 Schedule M-2, and the Schedules K-1 prepared for the partners.

Correct Answer
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Match each of the following statements with the terms below that provide the best definition -Inside basis

Correct Answer
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Match each of the following statements with the terms below that provide the best definition -Separately stated item

Correct Answer
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C

The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses to determine the partnership's equivalent of "taxable income." This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

Correct Answer
verified

On the formation of a partnership, when might a "disguised sale" occur? How can this treatment be avoided?

Correct Answer
verified
A disguised sale might occur when a part...
View Answer

A partnership's allocations of income and deductions to the partners are required to be proportionate to the partners' percentage ownership of partnership capital in order to meet the substantial economic effect tests.

Correct Answer
verified

The "inside basis" is defined as a partner's basis in the partnership interest.

Correct Answer
verified

Correct Answer
verified

An example of the "aggregate concept" underlying partnership taxation is the fact that the partners (rather than the partnership) pay tax on partnership income.

Correct Answer
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Match each of the following statements with the terms below that provide the best definition -Syndication costs

Correct Answer
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D

Correct Answer
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Correct Answer
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On a corporate Form 1120, Schedule M-1 (or M-3) is used to reconcile book and tax income, and Schedule M-2 reconciles retained earnings to the amounts shown on Schedule L. How are these reconciliations accomplished on a partnership return? What additional information must be provided?

Correct Answer
verified
A partnership is not a taxpaying entity ...
View Answer

If a partnership earns tax-exempt income, the income should not affect the partners' bases in their partnership interests. Do you agree with this statement? Explain.

Correct Answer
verified
Partnership income is intended to be sub...
View Answer

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

Correct Answer
verified

Exam 10: Partnerships: Formation, Operation, and Basis

Correct AnswerverifiedShow Answer

A partner will have the same profit-sharing, loss-sharing, and capital-sharing ownership percentages.

Correct AnswerverifiedShow Answer

Syndication costs arise when partnership interests are being marketed to investors. These costs cannot be amortized or deducted.

Correct AnswerverifiedShow Answer

A partnership must provide any information to the partners that the partners would need to calculate deductions not permitted at the partnership level, such as for oil and gas depletion or the corporate dividends received deduction.

Correct AnswerverifiedShow Answer

Which one of the following is not shown on the partnership's Schedule K on Page 4 of Form 1065?

Correct AnswerverifiedD

Partners' capital accounts should be determined using the same method on Form 1065 Schedule L, Form 1065 Schedule M-2, and the Schedules K-1 prepared for the partners.

Correct AnswerverifiedShow Answer

Match each of the following statements with the terms below that provide the best definition -Inside basis

Correct AnswerverifiedShow Answer

Match each of the following statements with the terms below that provide the best definition -Separately stated item

Correct AnswerverifiedC

The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses to determine the partnership's equivalent of "taxable income." This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

Correct AnswerverifiedShow Answer

On the formation of a partnership, when might a "disguised sale" occur? How can this treatment be avoided?

Correct AnswerverifiedA disguised sale might occur when a part...View AnswerShow Answer

A partnership's allocations of income and deductions to the partners are required to be proportionate to the partners' percentage ownership of partnership capital in order to meet the substantial economic effect tests.

Correct AnswerverifiedShow Answer

The "inside basis" is defined as a partner's basis in the partnership interest.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An example of the "aggregate concept" underlying partnership taxation is the fact that the partners (rather than the partnership) pay tax on partnership income.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedD

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On a corporate Form 1120, Schedule M-1 (or M-3) is used to reconcile book and tax income, and Schedule M-2 reconciles retained earnings to the amounts shown on Schedule L. How are these reconciliations accomplished on a partnership return? What additional information must be provided?

Correct AnswerverifiedA partnership is not a taxpaying entity ...View AnswerShow Answer

If a partnership earns tax-exempt income, the income should not affect the partners' bases in their partnership interests. Do you agree with this statement? Explain.

Correct AnswerverifiedPartnership income is intended to be sub...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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D

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C

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A disguised sale might occur when a part...
View Answer

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Correct Answer
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D

Correct Answer
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Correct Answer
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A partnership is not a taxpaying entity ...
View Answer

Correct Answer
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Partnership income is intended to be sub...
View Answer

Correct Answer
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