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Subject PS2 - Partnership Transactions
A partnership is the relationship existing between two or more persons who join to carry on a trade or business. There are many rules governing the the taxation partnerships which are intended to permit taxpayers to conduct joint business and investment activities without the risks of double taxation as with corporations. Tax School Homepage Student Instructions:Print this page, work on the questions and then submit test by mailing the answer sheet or by completing quiz online. Instructions to submit quiz online successfully: Step-by-Step check list Answer Sheet Quiz Online Most forms are in Adobe Acrobat PDF format.
Material needed to complete this assignment:Answer the following questions as accurate as possible. Please pay attention to your answers as they will appear again on the "Quiz Online" part of this topic. Prepare your answers for these questions and then click on "Assignment" online in step 3 above when you are ready to submit them.
1. The partnership makes most choices about how to figure income such as
A. Accounting method. 2. William, a partner in EarthPros, is a calendar year taxpayer. EarthPros fiscal year ends June 30. For partnership year ending June 30, 2012, William's distributive share of partnership profits is $3,000. On August 18, 2012, William dies and his estate succeeds to his partnership interest. For the partnership year ending June 30, 2013, William and his estate's distributive share is $4,000. What is William's self-employment income to be reported on Schedule SE (Form 1040) for 2012?
A. $4,000 3. Kenneth and Thomas are equal partners in a partnership. Kenneth files his individual return on a calendar year basis. The partnership return is also filed on a calendar year basis. The partnership incurred a $12,000 loss last year and Kenneth's distributive share of the loss is $6,000. The adjusted basis of his partnership interest before considering his share of last year's loss was $2,400. How much can Kenneth claim of loss on last year's individual return?
A. $2,000 4. A partnership distribution may be treated as a sale or exchange of property rather than a distribution when a partnership distributes which items?
A. Unrealized receivables or substantially appreciated inventory items
distributed in exchange for any part of the partner's interest in other
partnership property, including money. 5. The adjusted basis of Leslie's partnership interest is $16,000. She receives a distribution of $10,000 cash and land that has an adjusted basis of $3,000 and a fair market value of $4,000. How much gain does Leslie recognize on the distribution? Why? How much gain is recognized on the land and when? The distribution decreases the adjusted basis of Leslie's partnership interest by how much?
A. $3,000 6. When does a partner recognize a loss on a partnership distribution?
A. When the adjusted basis of the partner's interest in the partnership
exceeds the distribution.
7. The adjusted basis of Calvin's partnership interest is $35,000. He receives a distribution of property that has an adjusted basis of $25,000 to the partnership and $5,000 in cash. What is his basis for the property?
A. $15,000 8. The adjusted basis of Alejandro's partnership interest is $15,000. He receives a distribution of $5,000 cash and property that has and adjusted basis to the partnership of $10,000. What is Alejandro's basis for the distributed property?
A. $15,000 9. Under a partnership agreement, Curtis is to receive 25% of the partnership income, but not less than $10,000. The partnership has net income of $25,000. What is Curtis' share without regard to the minimum guarantee? What guaranteed payment if any can be deducted by the partnership?
A. $6,250; $3,750 10. Under a partnership agreement, Curtis is to receive 25% of the partnership income, but not less than $10,000. The partnership has net income of $40,000, what would Curtis' share be without regard to the minimum guarantee? What would the guaranteed payment that can be deducted by the partnership be?
A. $15,000; $0 11. Under the terms of a partnership agreement, Ryana is entitled to a fixed annual payment of $10,000 without regard to the income of the partnership. Her distributive share of the partnership income is 10%. The partnership has $75,000 of ordinary income after deducting the guaranteed payment. How much ordinary income must she include on her individual income tax return for her tax year in which the partnership's tax year ends?
A. $15,000 12. Derrick is a calendar year taxpayer who is a partner is a partnership. The partnership uses a fiscal year that ended January 3, 2013. Derrick received guaranteed payments from the partnership from February 1, 2012 until December 31, 2012. In what year must Derrick report these guaranteed payments.
A. 2013 13. Individuals Andrea, Carlos and Trust Darren are equal partners in Partnership ACT. Andrea's husband, Andrew, is the sole beneficiary of Trust Darren partnership interest will be attributed to Andrew only for the purpose of further attributing the interest to Andrea. Will any transactions for losses on transactions between Andrea and Partnership ACT be allowed? How will any gain from property that is in the hands of the transferee be treated?
A. Not allowed and gain treated as capital gain. 14. Travis acquired a 30% interest in a partnership by contributing property that had an adjusted basis to him of $10,000 and $6,000 mortgage. The partnership assumed payment of the mortgage. What is the basis of Travis' partnership interest?
A. $5,800 15. Perry acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and $12,000 mortgage. The partnership assumed payment of the mortgage. What is the basis of Perry' partnership interest?
A. -$1,600 16. Matthew contributes to his partnership property that has an adjusted basis of $400 and a fair market value of $1,000. His partner contributes $1,000 cash. What is Matthew's adjusted basis interest?
A. $400 17. Andres and Nolan form a cash basis general partnership with cash contributions of $20,000 each. Under the partnership agreement, they share all partnership profits and losses equally. They borrow $60,000 and purchase depreciable business equipment. How much would each partner include in his share of the liability?
A. Andres $30,000 and Nolan $120,000 18. Patrick and Tanya form a cash basis general partnership with cash contributions of $30,000 each. Under the partnership agreement, they share all partnership profits and losses equally. They borrow $90,000 and purchase depreciable business equipment. Tanya is required to pay the creditor if the partnership defaults, and thus she has an economic risk of loss in the liability. What is Patrick's and Tanya's basis in the partnership?
A. Patrick $30,000 and Tanya $120,000
For Questions 19 through 50 please prepare the following Partnership Return and the returns for the partners. The Bookshop Partnership (employer identification no. 77-2456778) was formed 5 years ago (01/01/2007) as a general partnership. The Bookshop is located at 123 Wilshire Blvd, Los Angeles, CA 90017. Jody Mar (SSN 604-34-0522) manages the business and has a 50% capital and profits interest. Her Address is 1507 7th St, Apt 23, Santa Monica, CA 90401. Michael Watt (SSN 573-23-3452) also manages The Bookshop Partnership and also owns 50% capital and profits interest. Michael's address is 30765 Pacific Coast Hwy, Suite 2, Malibu, CA 90265. Both Jody and Michael are active in the business. The partnership values its inventory using the the cost method and did not change the method during the current year. The Bookshop Partnership uses the accrual method of accounting and it is not subject to audit procedures. No changes is ownership of partnership interests occurred during the current year. Prepare a current year partnership tax return for The Bookshop Partnership using the following financial statements. Michael Watt information: Michael lives at 30765 Pacific Coast Hwy, Apt 2, Malibu, CA 90265. Michael is single and no dependents. His mortgage interest for the year is $7,250 and property taxes for his home is $1,790. Michael paid a total of $5,800 in estimated payments on time as they were due every quarter. Jody Mar information: Jody lives at 1507 7th Street, Apt 23, Santa Monica, CA 90401. Jody is single is she has a little daughter, Julia Carlson (SSN 627-89-0123 D.O.B. 7/23/2011) who lived with her all year. Jody is the only provider for Julia. Julia's father does not provide for Julia's support. Jody had medical expenses that were not covered by insurance $5,800. She also had contributions made to her Church $3,000. Jody paid a total of $3,800 in estimated payments on time as they were due every quarter.
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19. Look at the Form 1065 you prepared for The Bookshop Partnership. What is the amount on Line 1c?
A. $500,000 20. Look at the Form 1065 you prepared for The Bookshop Partnership. What is the amount on Line 3?
A. $500,000 21. Look at the Form 1065 you prepared for The Bookshop Partnership. What is the amount on Line 8?
A. $500,000 22. Look at the Form 1065 you prepared for The Bookshop Partnership. What is the amount on Line 9?
A. $50,000
23. Look at the Form 1065 you prepared for The Bookshop Partnership. What is the amount on Line 10?
A. $50,000 24. Look at the Form 1065 you prepared for The Bookshop Partnership. What is the amount on Line 13?
A. $50,000 25. Look at the Form 1065 you prepared for The Bookshop Partnership. What is the amount on Line 15?
A. $10,000 26. Look at the Form 1065 you prepared for The Bookshop Partnership. What is the amount on Line 16c?
A. $10,000 27. Look at the Form 1065 you prepared for The Bookshop Partnership. What is the amount on Line 20?
A. $50,000 28. Look at the Form 1065 you prepared for The Bookshop Partnership. What is the amount on Line 21?
A. $150,000 29. Look at the Form 1065 you prepared for The Bookshop Partnership. What is the amount on Line 22?
A. $40,000 30. Look at the Form 1065 (Schedule K) you prepared for The Bookshop Partnership. What is the amount on Line 1?
A. $40,000 31. Look at the Form 1065 (Schedule K) you prepared for The Bookshop Partnership. What is the amount on Line 4?
A. $40,000 32. Look at the Form 1065 (Schedule K) you prepared for The Bookshop Partnership. What is the amount on Line 13a?
A. $20,000 33. Look at the Form 1065 (Schedule K) you prepared for The Bookshop Partnership. What is the amount on Line 14a?
A. $20,000 34. Look at the Form 1065 (Schedule L) you prepared for The Bookshop Partnership. What is the amount on Line 14d?
A. $320,000 35. Look at the Form 1065 (Schedule L) you prepared for The Bookshop Partnership. What is the amount on Line 22a?
A. $320,000 36. Look at the Form 1065 (Schedule M-1) you prepared for The Bookshop Partnership. What is the amount on Line 9?
A. $55,000 37. Look at the Form 1065 (Schedule M-2) you prepared for The Bookshop Partnership. What is the amount on Line 9?
A. $155,000 38. Look at the Form 1065 (Schedule M-3) you prepared for The Bookshop Partnership. What is the amount on Line 1?
A. $155,000 39. Look at the Form 4562 you prepared for The Bookshop Partnership. What is the amount on Line 22?
A. $55,000 40. Look at the Form 1040 you prepared for Jody Mar. What is the amount on Line 17?
A. $32,500 41. Look at the Form 1040 you prepared for Jody Mar. What is the amount on Line 27?
A. $2,500 42. Look at the Form 1040 you prepared for Jody Mar. What is the amount on Line 40?
A. $8,700 43. Look at the Form 1040 you prepared for Jody Mar. What is the amount on Line 55?
A. $3 44. Look at the Form 1040 you prepared for Jody Mar. What is the amount on Line 56?
A. $3,000 45. Look at the Form 1040 you prepared for Jody Mar. What is the amount on Line 74a?
A. $1,875 46. Look at the Form 1040 you prepared for Michael Watt. What is the amount on Line 17?
A. $32,500 47. Look at the Form 1040 you prepared for Michael Watt. What is the amount on Line 27?
A. $2,500 48. Look at the Form 1040 you prepared for Michael Watt. What is the amount on Line 40?
A. $14,040 49. Look at the Form 1040 you prepared for Michael Watt. What is the amount on Line 56?
A. $4,040 50. Look at the Form 1040 you prepared for Michael Watt. What is the amount on Line 74a?
A. $4,040 Please Note: If you filled out the answers directly on this page, please print this page or write down the answers before you proceed to submit them by clicking on "Assignment" in step 3 above.
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