Quiz Submissions - ACCT 441 - Chapter 21 - Part II Homework Quiz

-------------------------------------------------
Top of Form

Your quiz has been submitted successfully. Question 1 | | 1 / 1 point |
In the current year, the POD Partnership received revenues of $200,000 and paid the following amounts: $50,000 in rent and utilities, and $20,000 as a distribution to partner Olivia. In addition, the partnership earned $6,000 of long- term capital gains during the year. Partner Donald owns a 50% interest in the partnership. How much income must Donald report for the tax year? | | a) | $68,000 ordinary income. | | | | b) | $78,000 ordinary income. | | | | c) | $65,000 ordinary income; $3,000 of long-term capital gains. | | | | d) | $75,000 ordinary income; $3,000 of long-term capital gains. | | Hide Feedback | | | RATIONALE: The partnership’s ordinary income is calculated as follows: Revenues | $200,000 | Less: rent and utilities | (50,000) | Ordinary income | $150,000 | The distribution to Olivia is not deductible. Donald’s share of POD’s ordinary income is $75,000. The $6,000 of longterm capital gains is a separately stated item, of which Donald’s share is $3,000. |

Question 2 | | 1 / 1 point |
Brooke and John formed a partnership. Brooke received a 40% interest in partnership capital and profits in exchange for contributing land (basis of $30,000 and fair market value of $120,000). John received a 60% interest in partnership capital and profits in exchange for contributing $180,000 of cash. Three years after the contribution date, the land contributed by Brooke is sold by the partnership to a third party for $150,000. How much taxable gain will Brooke recognize from the sale? | | a) | $102,000 | | | | b) | $90,000 | | | | c) | $48,000 | | | | d) | $36,000 | | Hide Feedback | | | RATIONALE: Section 704(c)(1)(A) requires that any precontribution gain must be allocated entirely to Brooke. Therefore, Brooke is allocated the $90,000 precontribution (“builtin”) gain and 40% ($12,000) of the $30,000 post contribution gain. |

Question 3 | | 1 / 1 point |
Binita contributed property with a basis of $40,000 and a value of $50,000 to the BE Partnership in exchange for a 20% interest in partnership capital and profits. During the first year of partnership operations, BE had net taxable income of $30,000 and tax-exempt interest income of $10,000. The partnership distributed $10,000 cash to Binita. Binita’s adjusted basis (outside basis) for her partnership interest at yearend is: | | a) | $36,000 | | | | b) | $38,000 | | | | c) | $60,000 | | | | d) | $70,000 | | Hide Feedback | | | RATIONALE: Binita is a 20% partner and shares in 20% of the partnership’s taxable and taxexempt income, or $8,000. Her basis is reduced by the cash distribution during the year. Binita’s ending basis is calculated as follows: $40,000 beginning basis + $8,000 [20% × ($30,000 + $10,000)] – $10,000 distribution. |

Question 4 | | 1 / 1 point |
Alicia and Barry form the AB Partnership at the start of the current year with a land contribution by Barry and a cash contribution by Alicia. Barry’s contributed property is subject to a recourse mortgage assumed by the partnership. Barry has an 80% interest in AB’s profits and losses. The land has been held by Barry 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? | | a) | Immediately after formation, Alicia’s basis in the partnership equals the cash contributed by Alicia. | | | | b) | Immediately after formation, Alicia’s basis in the partnership equals the cash she contributed plus her share of the recourse debt contributed by Barry. | | | | c) | Because the debt is recourse, the constructive liquidation scenario is not applicable for determining the allocation of debt to the partners. | | | | d) | AB’s basis in the land contributed by Barry equals Barry’s basis in the land immediately before the contribution date, less the amount of the recourse debt assumed by the partnership. | | Hide Feedback | | | RATIONALE: Choice a. is incorrect because the debt on the land contributed by Barry will increase Alicia’s interest in AB. Choice c. is incorrect because the constructive liquidation scenario is the method used to allocate debt to the partners. Choice d. is incorrect because the basis of the land to AB equals its basis to Barry immediately before the contribution date. |

Question 5 | | 1 / 1 point |
Sharon contributed property to the newly formed QRST Partnership. The property had a $100,000 adjusted basis to Sharon and a $160,000 fair market value on the contribution date. The property was also encumbered by a $120,000 nonrecourse debt, which was transferred to the partnership on that date. Another partner, Rochelle, shares 30% of the partnership income, gain, loss, deduction, and credit. Under IRS regulations, Rochelle’s share of the nonrecourse debt for basis purposes is: | | a) | $20,000 | | | | b) | $30,000 | | | | c) | $36,000 | | | | d) | $100,000 | | Hide Feedback | | | RATIONALE: The § 704(c) portion of the debt must first be allocated to the contributing partner, Sharon. The § 704(c) portion of the nonrecourse debt that is allocated to Sharon under this rule is $20,000 ($120,000 – $100,000 basis). The rest of the nonrecourse debt is allocated in the manner that the partners share in the deductions that relate to the debt. Therefore, Rochelle shares in $30,000 ($100,000 × 30%) of the remaining nonrecourse debt. |

Attempt Score: | 5 / 5 - A | Overall Grade (highest attempt): | 5 / 5 - A |

Bottom of Form
Close