Question 1

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?

Accepted Answer

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.
E)  None of the above is correct.F) A) and E)
G) A) and D)

Question 2

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

Accepted Answer

A)  The partnership reconciles its "Income Loss)  per Books" with "Income Loss)  per Return" 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 taxable/deductible 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)  The partnership deducts its allowable business interest expense on Form 1065, page 1, and allocates any excess to the partners for carryover.F) B) and C)
G) C) and E)

Question 3

The total tax burden on entity income is greater for a partner in a partnership up to 37% for an individual partner) than on a shareholder in a corporation 21% for an individual shareholder), so partnerships are only used in special situations.

Accepted Answer

A) True 
 B)False

Question 4

Match each of the following statements with the terms below that provide the best definition.
-Separately stated item

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)  Partnership in which partners are only liable for torts and malpractice.
E)  Expense might be reported on either form 1065, page 1 or on Schedule K.F) Transfer of asset to partnership followed by immediate distribution of cash to partner.G) Must have at least one general and one limited partner.H) Long-term capital gain might be recharacterized as ordinary income.I) All partners are jointly and severally liable for entity debts.J) Theory treating the partner and partnership as separate economic units.K) Partner's basis in partnership interest after tax-free contribution of asset to partnership.L) Partnership's basis in asset after tax-free contribution of asset to partnership.M) One way to calculate a partner's economic interest in the partnership.N) Owners are "members."O) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.P) Participates in management.Q) Not liable for entity debts.R) No correct match provided.S) C) and P)
T) E) and N) C

Question 5

Which of the following entity owners cannot participate in management of the 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)  None of the above.F) A) and D)
G) C) and E)

Question 6

Nicholas, a 1/3 partner, received a guaranteed payment in the current year of $50,000.Partnership income before consideration of the guaranteed payment was $20,000.Assuming no loss limitation rules apply, Nicholas reports a
$10,000 ordinary loss from partnership operations, and the $50,000 guaranteed payment as ordinary income.

Accepted Answer

A) True 
 B)False

Question 7

A limited partnership LP) offers all partners protection from claims by the LP's creditors.

Accepted Answer

A) True 
 B)False

Question 8

In a limited liability company, all members may participate in management the operating agreement cannot limit participation) and all entity debts are treated as nonrecourse liabilities for purposes of allocating the LLC's liabilities to basis.

Accepted Answer

A) True 
 B)False

Question 9

Morgan and Kristen formed an equal partnership on August 1 of the current year.Morgan contributed $60,000 cash and land with a basis of $18,000 and a fair market value of $40,000.Kristen contributed equipment with a basis of
$42,000 and a value of $100,000.Kristen and Morgan each have a basis of $100,000 in their partnership interests.

Accepted Answer

A) True 
 B)False

Question 10

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

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)  Partnership in which partners are only liable for torts and malpractice.
E)  Expense might be reported on either form 1065, page 1 or on Schedule K.F) Transfer of asset to partnership followed by immediate distribution of cash to partner.G) Must have at least one general and one limited partner.H) Long-term capital gain might be recharacterized as ordinary income.I) All partners are jointly and severally liable for entity debts.J) Theory treating the partner and partnership as separate economic units.K) Partner's basis in partnership interest after tax-free contribution of asset to partnership.L) Partnership's basis in asset after tax-free contribution of asset to partnership.M) One way to calculate a partner's economic interest in the partnership.N) Owners are "members."O) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.P) Participates in management.Q) Not liable for entity debts.R) No correct match provided.S) M) and Q)
T) E) and N)

Question 11

Seven years ago, Paul purchased residential rental estate that he has been depreciating as MACRS property over
27.5 years.This year, when his adjusted basis in the property was $250,000, Paul transferred the property to the newly formed PLA LLC in exchange for a one-third interest in the LLC.PLA incurred $10,000 of transfer taxes and fees related to the property.PLA must treat the $260,000 basis in the property, fees, and expenses, as new MACRS property depreciable over 27.5 years.

Accepted Answer

A) True 
 B)False  False

Question 12

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) B) and C)
G) A) and B)

Question 13

JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs.JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs $1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

Accepted Answer

A) True 
 B)False

Question 14

Match each of the following statements with the terms below that provide the best definition.
-Economic effect test

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 L)
R) E) and L)

Question 15

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 16

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the C corporation form?

Accepted Answer

A)  A partnership typically has easier administrative and filing requirements than does a C corporation.
B)  Partnership income is subject to a single level of taxation; corporate income is double taxed.
C)  Partnerships may specially allocate income and expenses among the partners, provided the substantial economic effect requirements are met; corporate dividends must be proportionate to shareholdings.
D)  Partners in a general partnership have less personal liability for entity claims than shareholders of a C corporation.
E)  All of the above are advantages of partnership taxation.F) B) and E)
G) B) and C)

Question 17

The BMR LLC conducted activities that were eligible for a $20,000 credit for increasing research activities.In addition, the LLC paid foreign taxes of $1,200.On the partners' Schedules K-1, BMR will allocate the $20,000 credit, and it will provide the necessary information so the partners can calculate the foreign tax credit if they so choose.

Accepted Answer

A) True 
 B)False

Question 18

The partnership reports each partner's share of income to the partner on a Form 1099-MISC.

Accepted Answer

A) True 
 B)False

Question 19

Which one of the following is not shown on the partnership's Schedule K on Page 4 of Form 1065?

Accepted Answer

A)  The partnership's self-employment income.
B)  The partnership's separately stated income and deductions.
C)  The partnership's tax preference and adjustment items.
D)  The partnership's net operating loss carryforward.
E)  The partnership's investment portfolio)  interest expense.F) B) and D)
G) A) and B) D

Question 20

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

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 O)
R) E) and G)

Exam 14: Partnerships and Limited Liability Entities

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

Correct Answer
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The total tax burden on entity income is greater for a partner in a partnership up to 37% for an individual partner) than on a shareholder in a corporation 21% for an individual shareholder), so partnerships are only used in special situations.

Correct Answer
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Match each of the following statements with the terms below that provide the best definition. -Separately stated item

Correct Answer
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C

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

Correct Answer
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A limited partnership LP) offers all partners protection from claims by the LP's creditors.

Correct Answer
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In a limited liability company, all members may participate in management the operating agreement cannot limit participation) and all entity debts are treated as nonrecourse liabilities for purposes of allocating the LLC's liabilities to basis.

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

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False

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JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs.JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs $1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

Correct Answer
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Match each of the following statements with the terms below that provide the best definition. -Economic effect test

Correct Answer
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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 of the following is not a correct statement regarding the advantage of the partnership entity form over the C corporation form?

Correct Answer
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The partnership reports each partner's share of income to the partner on a Form 1099-MISC.

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Which one of the following is not shown on the partnership's Schedule K on Page 4 of Form 1065?

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D

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

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Exam 14: Partnerships and Limited Liability Entities

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The total tax burden on entity income is greater for a partner in a partnership up to 37% for an individual partner) than on a shareholder in a corporation 21% for an individual shareholder), so partnerships are only used in special situations.

Correct AnswerverifiedShow Answer

Match each of the following statements with the terms below that provide the best definition. -Separately stated item

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A limited partnership LP) offers all partners protection from claims by the LP's creditors.

Correct AnswerverifiedShow Answer

In a limited liability company, all members may participate in management the operating agreement cannot limit participation) and all entity debts are treated as nonrecourse liabilities for purposes of allocating the LLC's liabilities to basis.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFalse

Correct AnswerverifiedShow Answer

JLK Partnership incurred $6,000 of organizational costs and $50,000 of startup costs.JKL may deduct $5,000 each of organizational and startup costs, and the remaining costs $1,000 of organizational costs and $45,000 of startup costs) may be amortized over 60 months.

Correct AnswerverifiedShow Answer

Match each of the following statements with the terms below that provide the best definition. -Economic effect test

Correct AnswerverifiedShow Answer

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 of the following is not a correct statement regarding the advantage of the partnership entity form over the C corporation form?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The partnership reports each partner's share of income to the partner on a Form 1099-MISC.

Correct AnswerverifiedShow Answer

Which one of the following is not shown on the partnership's Schedule K on Page 4 of Form 1065?

Correct AnswerverifiedD

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

Correct AnswerverifiedShow Answer

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C

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False

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D

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