Question 1

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

Question 2

In a proportionate liquidating distribution, Sara receives a distribution of $40,000 cash, accounts receivable (basis of $0, fair market value of $30,000) , and inventory (basis of $50,000, fair market value of $60,000) . Sara's basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sara's basis in the accounts receivable and inventory, and how much gain or loss does she recognize?

Accepted Answer

A)   $0 basis in accounts receivable; $50,000 basis in inventory; $30,000 loss.
B)   $0 basis in accounts receivable; $80,000 basis in inventory; $0 gain or loss.
C)   $40,000 basis in accounts receivable; $40,000 basis in inventory; $0 gain or loss.
D)   $30,000 basis in accounts receivable; $50,000 basis in inventory; $30,000 loss.
E)   $30,000 basis in accounts receivable; $60,000 basis in inventory; $10,000 gain.F) D) and E)
G) B) and E)

Question 3

The sum of the partners' ending basis amounts on all Schedules K­1 equals the partners' ending capital account balance shown on the partnership's Schedule L.

Accepted Answer

A) True 
 B)False

Question 4

When property is contributed to a partnership in exchange for a capital and profits interest, when does the partner's
Holding period begin for the partnership interest?

Accepted Answer

A)   The day after the contribution date.
B)   The day the property was contributed.
C)   The day the contributed property was purchased.
D)   The day the partnership interest was acquired.
E)   Either (or both)  c. and d. may be true, depending upon the types of property contributed.F) A) and D)
G) B) and D)

Question 5

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 D)
F) B) and C)

Question 6

Match each of the following statements with the terms below that provide the best definition.
-Schedules M-1 or M-3

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) D) and G)
R) E) and M)

Question 7

The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods, treatment of research and experimental costs, calculation of the § 199 deduction, and the § 754 election.

Accepted Answer

A) True 
 B)False

Question 8

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, regardless of whether or not distributed.

Accepted Answer

A) True 
 B)False

Question 9

The JIH Partnership distributed the following assets to partner James in a proportionate liquidating distribution in which the partnership also liquidated: $25,000 cash, land parcel A (basis of $5,000, fair market value of $30,000) and land parcel B (basis of $5,000, fair market value of $15,000). James's basis in his partnership interest was $85,000 immediately before the distribution. James will allocate bases of $40,000 to parcel A and $20,000 to parcel B, and he will have no remaining basis in his partnership interest.

Accepted Answer

A) True 
 B)False

Question 10

Megan's basis was $120,000 in the MYP Partnership interest just before she received a proportionate nonliquidating distribution consisting of land held for investment (basis of $100,000, fair market value of $130,000)  and inventory (basis of $80,000, fair market value of $70,000) . After the distribution, Megan's bases in the land and inventory are, respectively:

Accepted Answer

A)   $100,000 (land)  and $20,000 (inventory) .
B)   $120,000 (land)  and $0 (inventory) .
C)   $50,000 (land)  and $70,000 (inventory) .
D)  $40,000 (land)  and $80,000 (inventory) .
E)   None of the above.F) A) and B)
G) A) and C)

Question 11

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 12

Tim, Al, and Pat contributed assets to form the equal TAP Partnership. Tim contributed cash of $40,000 and land with a basis of $80,000 (fair market value of $60,000) . Al contributed cash of $60,000 and land with a basis of $50,000 (fair market value of $40,000) . Pat contributed cash of $60,000 and a fully depreciated property ($0 basis)  valued at $40,000. Which of the following tax treatments is not correct?

Accepted Answer

A)   Tim's basis in his partnership interest is $120,000.
B)   Al realizes and recognizes a loss of $10,000.
C)   Pat realizes a gain of $40,000 but recognizes $0 gain.
D)   TAP has a basis of $80,000, $50,000, and $0 in the land and property (excluding cash)  contributed by Tim, Al, and Pat, respectively.
E)   All of these statements are correct.F) All of the above
G) A) and B)

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

Matt, a partner in the MB Partnership, receives a proportionate, nonliquidating distribution of property having a fair market value of $16,000 and a partnership basis of $23,000. Matt's basis in the partnership is $10,000 before the distribution. In this situation, Matt will recognize no gain or loss. He will take a $10,000 basis in the property, and his basis in the partnership interest is reduced to zero.

Accepted Answer

A) True 
 B)False

Question 15

Jonathon owns a one­third interest in a liquidating partnership. Immediately before the liquidation, Jonathon's basis in the partnership interest is $60,000. The partnership distributes cash of $32,000 and two parcels of land (each with a fair market value of $10,000) . Parcel A has a basis of $2,000 to the partnership and Parcel B has a basis of $6,000. Jonathon's basis in the two parcels of land is:

Accepted Answer

A)   Parcel A, $2,000; Parcel B, $6,000.
B)   Parcel A, $7,000; Parcel B, $21,000.
C)   Parcel A, $10,000; Parcel B, $10,000.
D)   Parcel A, $14,000; Parcel B, $14,000.
E)   Parcel A, $15,000; Parcel B, $45,000.F) B) and E)
G) None of the above

Question 16

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

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) G) and L)
P) C) and N)

Question 17

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 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) J) and L)
P) B) and F)

Question 18

Beth sells her 25% partnership interest to Katie for $50,000 cash on July 1 of the current tax year. Katie also assumed Beth's share of the partnership's liabilities. Beth's basis in her partnership interest at the beginning of the year was $40,000, including a $15,000 share of partnership liabilities. The partnership's income for the entire year was $100,000, and Beth's share of partnership debt was $10,000 as of the date she sold the partnership interest. Assume the partnership has no hot assets and that its income is earned evenly throughout the year. Beth recognizes a gain of $12,500 on the sale.

Accepted Answer

A) True 
 B)False

Question 19

Misty and John formed the MJ Partnership. Misty contributed $50,000 of cash in exchange for her 50% interest in the partnership capital and profits. During the first year of partnership operations, the following events occurred: the partnership had a net taxable income of $20,000; Misty received a distribution of $12,000 cash from the partnership; and Misty had a 50% share in the partnership's $60,000 of recourse liabilities on the last day of the partnership year. Misty's adjusted basis for her partnership interest at year end is:

Accepted Answer

A)   $48,000.
B)   $60,000.
C)   $78,000.
D)   $88,000.
E)   $90,000.F) A) and D)
G) B) and D)

Question 20

Sharon and Sue are equal partners in the S&S Partnership. On January 1 of the current year, each partner's adjusted basis in S&S was $80,000 (including each partner's $20,000 share of the partnership's $40,000 of liabilities). During the current year, S&S repaid $30,000 of the debt and borrowed $20,000 for which Sharon and Sue are equally liable. In the current year ended December 31, S&S also sustained a net operating loss of $40,000 and earned $10,000 of interest income from investments. If liabilities are shared equally by the partners, on January 1 of the next year how much is each partner's basis in her interest in S&S?

Accepted Answer

$60,000. Each partner's initial basis in...

Exam 21: Partnerships

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$60,000. Each partner's initial basis in...
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Match each of the following statements with the terms below that provide the best definition. -Substituted

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The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods, treatment of research and experimental costs, calculation of the § 199 deduction, and the § 754 election.

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The sum of the partners' ending basis amounts on all Schedules K1 equals the partners' ending capital account balance shown on the partnership's Schedule L.

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

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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.

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

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When property is contributed to a partnership in exchange for a capital and profits interest, when does the partner's Holding period begin for the partnership interest?

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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, regardless of whether or not distributed.

Correct Answer
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Match each of the following statements with the terms below that provide the best definition. -Schedules M-1 or M-3

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Exam 21: Partnerships

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Correct Answerverified$60,000. Each partner's initial basis in...View AnswerShow Answer

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

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The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods, treatment of research and experimental costs, calculation of the § 199 deduction, and the § 754 election.

Correct AnswerverifiedShow Answer

The sum of the partners' ending basis amounts on all Schedules K­1 equals the partners' ending capital account balance shown on the partnership's Schedule L.

Correct AnswerverifiedShow Answer

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

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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. -Syndication costs

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When property is contributed to a partnership in exchange for a capital and profits interest, when does the partner's Holding period begin for the partnership interest?

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Correct AnswerverifiedShow Answer

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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, regardless of whether or not distributed.

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Match each of the following statements with the terms below that provide the best definition. -Schedules M-1 or M-3

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$60,000. Each partner's initial basis in...
View Answer

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The sum of the partners' ending basis amounts on all Schedules K1 equals the partners' ending capital account balance shown on the partnership's Schedule L.

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