Question 1

Which of the following entity owners cannot participate in the management of an entity?

Accepted Answer

A)   A general partner in a general partnership.
B)   A member of a limited liability company.
C)   A partner in a limited liability partnership.
D)   A limited partner in a limited partnership.E) A) and B)
F) None of the above

Question 2

Match each of the following statements with the terms below that provide the best definition.
-Required taxable year

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) C) and L)
R) H) and O)

Question 3

Match each of the following statements with the terms below that provide the best definition.
-Qualified business income 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) 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) B) and G)
R) F) and O)

Question 4

Compare the different tax results (gains, losses, basis) that might arise for a partner in a proportionate current
(nonliquidating) distribution versus a proportionate liquidating distribution, under the general tax rules.

Accepted Answer

Gains. For both a proportionate liquidat...

Question 5

Which of the following statements is always true regarding accounting methods available to a partnership?

Accepted Answer

A)   If a partnership is a tax shelter, it can use the cash method of accounting.
B)   If a nontax-shelter partnership had average annual gross receipts of less than $25 million in for the last three tax years, it can use the cash method.
C)   If a partnership has a partner that is a personal service corporation, it cannot use the cash method.
D)   If a partnership has a partner that is a C corporation, it cannot use the cash method.
E)   All of these statements are always true.F) B) and D)
G) B) and C)

Question 6

William is a general partner in the WST partnership. During the current year, he receives a guaranteed payment of
$10,000 for services he provides to the partnership, and his distributive share of partnership income is $30,000. William is required to pay self-employment tax on the $10,000 guaranteed payment but not on his distributive share of partnership income.

Accepted Answer

A) True 
 B)False

Question 7

In a proportionate liquidating distribution of his 40% interest in the RST LLC, Stuart received cash ($100,000), land (basis of $60,000 and value of $90,000), and inventory (basis of $30,000 and value of $40,000). In addition, Stuart is relieved of his $80,000 share of the LLC's liabilities. Stuart's basis in RST (including his share of LLC liabilities) was
$200,000 immediately prior to this distribution.

a. How much gain or loss does Stuart recognize on this distribution?
b. What is Stuart's basis in the land and inventory he receives in the distribution?

Accepted Answer

(including his relief of liabilities), w...

Question 8

Mack has a basis in a partnership interest of $200,000, including his share of partnership debt. At the end of the current year, the partnership distributed to Mack, in a proportionate current (nonliquidating)  distribution, cash of $20,000, inventory (basis to the partnership of $30,000 and fair market value of $40,000) , and land (basis to the partnership of $40,000 and fair market value of $42,000) . In addition, Mack's share of partnership debt decreased by
$12,000 during the year. What basis does Mack take in the inventory and land and in the partnership interest
(including debt share)  following the distribution?

Accepted Answer

A)   $30,000 basis in inventory; $40,000 basis in land, $98,000 basis in partnership.
B)   $30,000 basis in inventory; $42,000 basis in land, $110,000 basis in partnership.
C)   $40,000 basis in inventory; $40,000 basis in land, $86,000 basis in partnership.
D)   $40,000 basis in inventory; $42,000 basis in land, $98,000 basis in partnership.
E)   $40,000 basis in inventory; $42,000 basis in land, $110,000 basis in partnership.F) All of the above
G) A) and E)

Question 9

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 one-third 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)   Carried interest.
C)   $25,000 ordinary income.
D)   $25,000 long-term capital gain.
E)   $25,000 short-term capital gain.F) A) and E)
G) A) and B)

Question 10

Josh owns a 25% capital and profits interest in the calendar year GDJ Partnership. His adjusted basis for his partnership interest on October 15 of the current year is $300,000. On that date, the partnership liquidates and makes a proportionate distribution of the following assets to Josh.  
a. Calculate Josh's recognized gain or loss on the liquidating distribution, if any, and his basis in the distributed inventory.
How would your answer to
a. change if the partnership also distributed a small parcel of land it
b. had held for investment to Josh? Assume the land has a $5,000 adjusted basis (FMV is $8,000)
to the partnership.

Accepted Answer

a. Josh takes a carryover basis of $120,...

Question 11

Kristie is a 25% member in the KLM LLC. At the end of the year, KLM has accounts payable of $60,000 (recourse to the LLC but not guaranteed by the LLC members) , and a nonrecourse debt related to real estate of $300,000 (meets the at risk limitation requirements) . In addition, Kristie personally guaranteed a $50,000 liability for KLM's equipment purchases. Which of the following indicates the information that should be reported on Kristie's Schedule K-1 for the year?

Accepted Answer

A)   $15,000 recourse debt, $75,000 qualified nonrecourse financing.
B)   $90,000 nonrecourse debt.
C)   $90,000 nonrecourse debt, $12,500 recourse financing.
D)   $65,000 recourse debt, $75,000 qualified nonrecourse financing.
E)   $50,000 recourse debt, $15,000 nonrecourse debt, $75,000 qualified nonrecourse financing.F) A) and B)
G) A) and C)

Question 12

AmCo and BamCo form the AB General Partnership at the start of the current year with a land contribution by BamCo and a cash contribution by AmCo. BamCo's contributed property is subject to a recourse mortgage assumed by the partnership. BamCo has an 80% interest in AB's profits and losses. The land has been held by BamCo 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, AmCo's basis in the partnership equals the cash that it contributed .
B)   Immediately after formation, AmCo 's basis in the partnership equals the cash that it contributed plus AmCo's share of the recourse debt contributed by BamCo.
C)   Because the debt is recourse, it can be allocated only to the general partners if one of them personally guarantees the debt.
D)   AB's basis in the land contributed by BamCo equals BamCo's basis in the land immediately before the contribution date, less the amount of the recourse debt assumed by the partnership.
E)   None of these statements is correct.F) A) and B)
G) A) and C)

Question 13

The December 31 balance sheet of DBW, LLP, a service-providing partnership, reads as follows. $\begin{array}{lrr}&\text { Adjusted }\&\text { Basis } & \text { FMV } \
\text { Cash } & \$ 180,000 & \$ 180,000 \
\text { Receivables } & -0- & 60,000 \
\text { Capital assets } & \underline{90,000} & \underline{120,000} \
\text { Total } & \$ 270,000 & \$ 360,000\\
\text { Dana, capital } & \$ 90,000 & \$ 120,000 \
\text { Brooke, capital } & 90,000 & 120,000 \
\text { Whitney, capital } & \underline{90,000} & \underline{120,000} \
\text { Total } & \$ 270,000 & \$ 360,000
\end{array}$ The partners share equally in partnership capital, income, gain, loss, deduction, and credit. Capital is not a material income-producing factor to the partnership. On December 31, partner Dana (who is an active managing partner in the partnership) receives a distribution of $120,000 cash in liquidation of her partnership interest under § 736. Dana's outside basis for the partnership interest immediately before the distribution is $90,000. How much is her gain or loss on the distribution and what is its character?

Accepted Answer

$20,000 ordinary income and $10,000 capi...

Question 14

Kristie is a 30% partner in the KKM Partnership. During the current year, KKM reported gross receipts of $280,000 and a charitable contribution of $30,000. The partnership paid office expenses of $80,000. In addition, KKM distributed $20,000 each to partners Kaylyn and Megan, and paid partner Kaylyn $20,000 for administrative services. Kristie reports the following income from KKM during the current tax year.

Accepted Answer

A)   $54,000 ordinary income; $9,000 charitable contribution.
B)   $60,000 ordinary income; $9,000 charitable contribution.
C)   $33,000 ordinary income.
D)   $54,000 ordinary income.E) A) and D)
F) B) and C)

Question 15

In a proportionate current (nonliquidating) distribution, cash is deemed to be distributed first followed by capital and §
1231 assets, and last, unrealized receivables and inventory.

Accepted Answer

A) True 
 B)False

Question 16

One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner even if it is not distributed.

Accepted Answer

A) True 
 B)False

Question 17

Molly is a 30% partner in the MAP Partnership. During the current tax year, the partnership reported ordinary income of $200,000 before any permitted deduction for guaranteed payments and distributions to partners. The partnership made an ordinary cash distribution of $20,000 to Molly and made guaranteed payments to partners Molly, Amber, and Pat of $20,000 each ($60,000 total guaranteed payments) . How much will Molly's adjusted gross income increase as a result of these items?

Accepted Answer

A)   $36,000
B)   $42,000
C)   $60,000
D)   $62,000
E)   $80,000F) A) and E)
G) A) and B)

Question 18

Steve's basis in his SAW Partnership interest is $200,000 including all adjustments at the beginning of the tax year, .
His allocable share of partnership items is: ($120,000) of ordinary loss, $6,000 tax-exempt interest income, and a
$14,000 long-term capital gain. In addition, during the year, the LLC distributed $20,000 of cash to Steve. Also during the year, Steve's share of partnership debt increased by $10,000. Steve's ending basis in his LLC interest is $80,000.

Accepted Answer

A) True 
 B)False

Question 19

A partner's profit-sharing, loss-sharing, and capital-sharing ownership percentages are the same.

Accepted Answer

A) True 
 B)False

Question 20

Frank receives a proportionate current (nonliquidating)  distribution from the AEF Partnership. The distribution consists of $10,000 cash and property (adjusted basis to the partnership of $54,000 and fair market value of $60,000) . Immediately before the distribution, Frank's adjusted basis in the partnership interest was $50,000. His basis in the noncash property received is:

Accepted Answer

A)   $0.
B)   $40,000.
C)   $50,000.
D)   $54,000.
E)   $60,000.F) B) and D)
G) D) and E)

Exam 21: Partnerships

One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner even if it is not distributed.

Correct Answer
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A partner's profit-sharing, loss-sharing, and capital-sharing ownership percentages are the same.

Correct Answer
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Match each of the following statements with the terms below that provide the best definition. -Required taxable year

Correct Answer
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Compare the different tax results (gains, losses, basis) that might arise for a partner in a proportionate current (nonliquidating) distribution versus a proportionate liquidating distribution, under the general tax rules.

Correct Answer
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Gains. For both a proportionate liquidat...
View Answer

Correct Answer
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a. Josh takes a carryover basis of $120,...
View Answer

Match each of the following statements with the terms below that provide the best definition. -Qualified business income deduction

Correct Answer
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$20,000 ordinary income and $10,000 capi...
View Answer

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Which of the following entity owners cannot participate in the management of an entity?

Correct Answer
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Which of the following statements is always true regarding accounting methods available to a partnership?

Correct Answer
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(including his relief of liabilities), w...
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In a proportionate current (nonliquidating) distribution, cash is deemed to be distributed first followed by capital and § 1231 assets, and last, unrealized receivables and inventory.

Correct Answer
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Exam 21: Partnerships

One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner even if it is not distributed.

Correct AnswerverifiedShow Answer

A partner's profit-sharing, loss-sharing, and capital-sharing ownership percentages are the same.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Match each of the following statements with the terms below that provide the best definition. -Required taxable year

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Compare the different tax results (gains, losses, basis) that might arise for a partner in a proportionate current (nonliquidating) distribution versus a proportionate liquidating distribution, under the general tax rules.

Correct AnswerverifiedGains. For both a proportionate liquidat...View AnswerShow Answer

Correct Answerverifieda. Josh takes a carryover basis of $120,...View AnswerShow Answer

Match each of the following statements with the terms below that provide the best definition. -Qualified business income deduction

Correct AnswerverifiedShow Answer

Correct Answerverified$20,000 ordinary income and $10,000 capi...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following entity owners cannot participate in the management of an entity?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is always true regarding accounting methods available to a partnership?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answerverified(including his relief of liabilities), w...View AnswerShow Answer

Correct AnswerverifiedShow Answer

In a proportionate current (nonliquidating) distribution, cash is deemed to be distributed first followed by capital and § 1231 assets, and last, unrealized receivables and inventory.

Correct AnswerverifiedShow Answer

Correct Answer
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Gains. For both a proportionate liquidat...
View Answer

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a. Josh takes a carryover basis of $120,...
View Answer

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$20,000 ordinary income and $10,000 capi...
View Answer

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Correct Answer
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(including his relief of liabilities), w...
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Correct Answer
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