Question 1

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.On July 1 of the current year, the unrestricted partnership 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) B) and C)
F) None of the above

Question 2

Allison is a 40% partner in the BAM Partnership.At the beginning of the tax year, Allison's basis in the partnership interest was $100,000, including her share of partnership liabilities.During the current year, BAM reported an ordinary loss of $60,000 (before the following payments to the partners) .In addition, BAM made an ordinary distribution of $8,000 to Allison and paid partner Brian a $20,000 consulting fee.At the end of the year, Allison's share of partnership liabilities decreased by $10,000.Assuming loss limitation rules do not apply, Allison's basis in the partnership interest at the end of the year is:

Accepted Answer

A)  $2,000.
B)  $50,000.
C)  $58,000.
D)  $70,000.E) A) and B)
F) All of the above

Question 3

​Which one of the following is a true statement regarding the allocation of partnership debt among the partners for purposes of calculating basis?

Accepted Answer

A)  ​No debt is allocated to LLC members because they are not liable for entity debts.
B)  ​Nonrecourse debt is not allocated to general partners unless they personally guarantee the debt.
C)  ​In a limited partnership, debt is only allocated to general partners.
D)  ​In a limited liability partnership, debt is allocated among the managing partners, but not the partners with "limited liability."
E)  ​For basis purposes, partnership debt is allocated among the partners even if no partner is personally liable for the debt.F) None of the above
G) C) and E)

Question 4

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.§ 1.704-1(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 5

On a partnership's Form 1065, which of the following statements is not true?

Accepted Answer

A)  The partnership reconciles its net "taxable" (equivalent)  income to book income on Schedule M-1 or M-3.
B)  The partnership balance sheet on Schedule L is generally presented on a financial (book)  basis.
C)  All partnership income and expense items are reported on Form 1065, page 1.
D)  The partnership's equivalent of taxable income is reported in the "Analysis of Income (Loss) ."E) A) and B)
F) B) and C)

Question 6

At the beginning of the year, Heather's "tax basis" capital account balance in the HEP Partnership was $85,000.During the tax year, Heather contributed property with a basis of $6,000 and a fair market value of $10,000.Her share of the partnership's ordinary income and separately stated income and deduction items was $40,000.At the end of the year, the partnership distributed $15,000 of cash to Heather.In addition, the partnership allocated $12,000 of recourse debt and $10,000 of nonrecourse debt to Heather.What is Heather's ending capital account balance determined using the "tax basis" method?

Accepted Answer

A)  $116,000
B)  $120,000
C)  $126,000
D)  $128,000
E)  $138,000F) A) and C)
G) A) and D)

Question 7

At the beginning of the tax year, Zach's basis for his partnership interest and his amount at risk in the partnership was $30,000.His share of partnership items for the year consisted of tax-exempt interest income of $2,000 and an ordinary loss of $44,000.He also received a distribution from the partnership of $20,000 cash during the year.For the tax year, Zach will report:

Accepted Answer

A)  A nontaxable distribution of $20,000, an ordinary loss of $10,000, and a suspended loss carryforward of $34,000.
B)  An ordinary loss of $32,000, a suspended loss carryforward of $12,000, and a taxable distribution of $20,000.
C)  A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000.
D)  An ordinary loss of $44,000 and a nontaxable distribution of $20,000.E) A) and C)
F) A) and B)

Question 8

​Which one of the following is not an item that should be documented in the partnership (or LLC operating)  agreement?

Accepted Answer

A)  ​Allocations of cash flows.
B)  ​Allocations of profits and losses.
C)  ​Liquidating distributions.
D)  ​Partners' rights in managing the partnership.
E)  ​All of the above should be documented.F) C) and D)
G) A) and E)

Question 9

Match each of the following statements with the terms below that provide the best definition.
-Precontribution gain

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) Theory under which a partnership's recourse debt is shared among the partners.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) H) and M)
R) A) and H)

Question 10

Match each of the following statements with the terms below that provide the best definition.
-Partner's capital account

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) Theory under which a partnership's recourse debt is shared among the partners.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 O)
R) A) and L)

Question 11

In the current year, Derek formed an equal partnership with Cody.Derek contributed land with an adjusted basis of $110,000 and a fair market value of $200,000.Derek also contributed $50,000 cash to the partnership.Cody contributed land with an adjusted basis of $80,000 and a fair market value of $230,000.The land contributed by Derek was encumbered by a $60,000 nonrecourse debt.The land contributed by Cody was encumbered by $40,000 of nonrecourse debt.Assume the partners share debt equally.Immediately after the formation, what is the basis of Cody's partnership interest?

Accepted Answer

The answer of In the current year, Derek formed an...

Question 12

Rebecca is a limited partner in the RST Partnership, which is not publicly traded.Her allocable share of RST's passive ordinary losses from a nonrealty activity for the current year is ($60,000) .Rebecca has a $40,000 adjusted basis (outside basis)  for her interest in RST (before deduction of any of the passive losses) .Her amount "at risk" is $30,000 (before deduction of any of the passive losses) .She also has $25,000 of passive income from other sources.How much of her ($60,000)  allocable loss can Rebecca deduct on her current year's tax return?

Accepted Answer

A)  $25,000
B)  $30,000
C)  $40,000
D)  $60,000
E)  None of the aboveF) A) and D)
G) B) and E)

Question 13

On January 1 of the current year, Anna and Jason form an equal partnership.Anna contributes $50,000 cash and a parcel of land (adjusted basis of $100,000; fair market value of $150,000)  in exchange for her interest in the partnership.Jason contributes property (adjusted basis of $180,000; fair market value of $200,000)  in exchange for his partnership interest.Which of the following statements is true concerning the income tax results of this partnership formation?

Accepted Answer

A)  Jason recognizes a $20,000 gain on his property transfer.
B)  Jason has a $200,000 tax basis for his partnership interest.
C)  Anna has a $150,000 tax basis for her partnership interest.
D)  The partnership has a $150,000 adjusted basis in the land contributed by Anna.E) B) and C)
F) A) and D)

Question 14

Ken and Lars formed the equal KL Partnership during the current year, with Ken contributing $100,000 in cash and Lars contributing land (basis of $60,000, fair market value of $40,000) and equipment (basis of $0, fair market value of $60,000).Lars recognizes a $40,000 gain on the contribution and his basis in his partnership interest is $100,000.

Accepted Answer

A) True 
 B)False

Question 15

Match each of the following statements with the terms below that provide the best definition.
-Aggregate 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 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) A) and F)
P) F) and L)

Question 16

Samuel is the managing general partner of STU, in which he owns a 25% interest.For the year, STU reported ordinary income of $400,000 (after deducting all guaranteed payments) .In addition, the LLC reported interest income of $12,000.Samuel received a guaranteed payment of $120,000 for services he performed for STU.How much income from self-employment did Samuel earn from STU?

Accepted Answer

A)  $100,000
B)  $120,000
C)  $220,000
D)  $223,000E) None of the above
F) B) and D)

Question 17

Match each of the following statements with the terms below that provide the best definition.
-Startup 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) C) and L)
P) C) and N)

Question 18

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 19

Which of the following is a correct definition of a concept related to partnership taxation?

Accepted Answer

A)  The aggregate concept treats partners and partnerships as separate units and gives the partnership its own tax "personality."
B)  A partner's capital sharing ratio is defined as the percent of partnership assets (capital)  that would be allocated to the partner upon liquidation of the partnership.
C)  The partnership's outside basis is defined as the sum of each partner's capital account balance.
D)  A special allocation is defined as an amount that could differently affect the tax liabilities of two or more partners.E) A) and D)
F) B) and C)

Question 20

Laura is a real estate developer and owns property that is treated as inventory (not a capital asset) in her business.She contributes a parcel of this land (basis of $15,000) to a partnership, also to be held as inventory.The fair market value of the property is $12,000 at the contribution date.After three years, the partnership sells the land for $10,000.The partnership will recognize a $5,000 ordinary loss on sale of the property.

Accepted Answer

A) True 
 B)False

Exam 14: Partnerships and Limited Liability Entities

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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Which one of the following is a true statement regarding the allocation of partnership debt among the partners for purposes of calculating basis?

Correct Answer
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Correct Answer
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Match each of the following statements with the terms below that provide the best definition. -Partner's capital account

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

On a partnership's Form 1065, which of the following statements is not true?

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

Correct Answer
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Correct Answer
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Which of the following is a correct definition of a concept related to partnership taxation?

Correct Answer
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Which one of the following is not an item that should be documented in the partnership (or LLC operating) agreement?

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

Correct Answer
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Match each of the following statements with the terms below that provide the best definition. -Precontribution gain

Correct Answer
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Exam 14: Partnerships and Limited Liability Entities

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

​Which one of the following is a true statement regarding the allocation of partnership debt among the partners for purposes of calculating basis?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Match each of the following statements with the terms below that provide the best definition. -Partner's capital account

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

On a partnership's Form 1065, which of the following statements is not true?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is a correct definition of a concept related to partnership taxation?

Correct AnswerverifiedShow Answer

​Which one of the following is not an item that should be documented in the partnership (or LLC operating) agreement?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

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Correct AnswerverifiedShow Answer

Match each of the following statements with the terms below that provide the best definition. -Precontribution gain

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Correct AnswerverifiedShow Answer

Correct Answer
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Which one of the following is a true statement regarding the allocation of partnership debt among the partners for purposes of calculating basis?

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

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Which one of the following is not an item that should be documented in the partnership (or LLC operating) agreement?

Correct Answer
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