Question 1

Jeordie and Kendis created the JK Partnership by contributing $100,000 each. The $200,000 cash was used by the partnership to acquire a depreciable asset. The partnership agreement provides that the partners' capital accounts will be maintained in accordance with Reg. § 1.704-1(b) (the "economic effect" Regulations) and that any partner with a deficit capital account will be required to restore that capital account when the partner's interest is liquidated. The partnership agreement provides that MACRS will be allocated 20% to Jeordie and 80% to Kendis. All other items of partnership income, gain, loss, deduction, and credit will be allocated equally between the partners. In the first year, MACRS is $40,000 and no other operating transactions occur. The property is sold at the end of the year for $160,000 and the partnership is liquidated immediately thereafter.
To satisfy the economic effect test, how much of the $160,000 cash (from the sale) is allocated each to Jeordie and Kendis?

Accepted Answer

Distributions upon liquidation must foll...

Question 2

Which of the following statements is correct regarding the manner in which partnership liabilities are reflected in the partners' bases in their partnership interests?

Accepted Answer

A)  Nonrecourse debt is allocated to the partners according to their loss-sharing ratios.
B)  Recourse debt is allocated to the partners to the extent of the partnership's minimum gain in the property.
C)  An increase in partnership debts results in a decrease in the partners' bases in the partnership interest.
D)  A decrease in partnership debt is treated as a distribution from the partnership to the partner and reduces the partner's basis in the partnership interest.
E)  Partnership debt is not reflected in the partners' bases in their partnership interests.F) A) and B)
G) C) and D)

Question 3

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

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 tax-free contribution of asset to partnership.J) Partnership's basis in asset after tax-free 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) A) and D)
P) A) and L)

Question 4

In the current year, Derek formed an equal partnership with Cody. Derek contributed land with an adjusted basis of $110,000 and a fair market value of $200,000. Derek also contributed $50,000 cash to the partnership. Cody contributed land with an adjusted basis of $80,000 and a fair market value of $230,000. The land contributed by Derek was encumbered by a $60,000 nonrecourse debt. The land contributed by Cody was encumbered by $40,000 of nonrecourse debt. Assume the partners share debt equally. Immediately after the formation, what is the basis of Cody's partnership interest?

Accepted Answer

$90,000. C...

Question 5

Match each of the following statements with the terms below that provide the best definition.
-Schedule K-1

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) J) and L)
R) D) and P)

Question 6

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

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 tax-free contribution of asset to partnership.J) Partnership's basis in asset after tax-free 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) F) and I)
P) A) and B)

Question 7

Allison and Taylor form a partnership by each making contributions of $90,000 cash to partnership capital. The partnership purchases an asset for $600,000, using the cash and financing the rest with a $420,000 recourse note. The partners expect the partnership to have losses for the first three years of operations and profits thereafter. Allison is allocated 75% of partnership losses until the date when the total partnership profits exceed total partnership losses. After that date, the profits and losses are shared equally between the two partners. How will the recourse debt be shared between the partners for basis purposes immediately after the property is acquired?

Accepted Answer

The recourse debt will be allocated $360...

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Maria owns a 60% interest in the KLM Partnership. Four years ago her father gave her a parcel of land. The gift basis of the land to Maria is $60,000. In the current year, Maria had still not figured out how to use the land for her own personal or business use; consequently, she sold the land to the partnership for $50,000. The partnership immediately started using the land as a parking lot for its employees. Maria may recognize her $10,000 loss on the sale.

Accepted Answer

A) True 
 B)False

Question 10

Section 721 provides that no gain or loss is recognized on a contribution of property to a partnership in exchange for an interest in the partnership. An exception might apply if the taxpayer receives a cash distribution from the partnership soon after the property contribution is made.

Accepted Answer

A) True 
 B)False

Question 11

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 12

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

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 tax-free contribution of asset to partnership.J) Partnership's basis in asset after tax-free 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) H) and I)
P) C) and D)

Question 13

Katherine invested $80,000 this year to purchase a 30% interest in the KLM Partnership. The partnership reported $200,000 of net income from operations, a $2,000 short-term capital loss, and a $10,000 charitable contribution. In addition, the partnership distributed $20,000 to Katherine and $10,000 each to partners Lauren and Missy. Assuming the partnership has no beginning or ending liabilities, what is Katherine's basis in her partnership interest at the end of the year?

Accepted Answer

$116,400. Katherine's initial basis of $...

Question 14

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)  All of the above.F) A) and D)
G) B) and C)

Question 15

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

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 P)
R) H) and N)

Question 16

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate 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) None of the above
G) A) and B)

Question 17

A partnership is an association formed by two or more taxpayers (which may be any type of entity) to carry on a trade or business.

Accepted Answer

A) True 
 B)False

Question 18

A partnership must provide any information to the partners that the partners would need to calculate deductions not permitted at the partnership level, such as for oil and gas depletion or the corporate dividends received deduction.

Accepted Answer

A) True 
 B)False

Question 19

On a corporate Form 1120, Schedule M-1 (or M-3) is used to reconcile book and tax income, and Schedule M-2 reconciles retained earnings to the amounts shown on Schedule L. How are these reconciliations accomplished on a partnership return? What additional information must be provided?

Accepted Answer

A partnership is not a taxpaying entity ...

Question 20

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 tax-free contribution of asset to partnership.J) Partnership's basis in asset after tax-free 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) I) and J)
P) A) and H)

Exam 14: Partnerships and Limited Liability Entities

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

Correct Answer
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A partnership must provide any information to the partners that the partners would need to calculate deductions not permitted at the partnership level, such as for oil and gas depletion or the corporate dividends received deduction.

Correct Answer
verified

On a corporate Form 1120, Schedule M-1 (or M-3) is used to reconcile book and tax income, and Schedule M-2 reconciles retained earnings to the amounts shown on Schedule L. How are these reconciliations accomplished on a partnership return? What additional information must be provided?

Correct Answer
verified
A partnership is not a taxpaying entity ...
View Answer

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

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

Correct Answer
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Correct Answer
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Distributions upon liquidation must foll...
View Answer

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

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 subchapter C corporate form?

Correct Answer
verified

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

Correct Answer
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Correct Answer
verified

A partnership is an association formed by two or more taxpayers (which may be any type of entity) to carry on a trade or business.

Correct Answer
verified

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

Correct Answer
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Correct Answer
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Section 721 provides that no gain or loss is recognized on a contribution of property to a partnership in exchange for an interest in the partnership. An exception might apply if the taxpayer receives a cash distribution from the partnership soon after the property contribution is made.

Correct Answer
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Which of the following statements is correct regarding the manner in which partnership liabilities are reflected in the partners' bases in their partnership interests?

Correct Answer
verified

Correct Answer
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$90,000. C...
View Answer

Correct Answer
verified
$116,400. Katherine's initial basis of $...
View Answer

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

Correct Answer
verified

Correct Answer
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The recourse debt will be allocated $360...
View Answer

Match each of the following statements with the terms below that provide the best definition. -Schedule K-1

Correct Answer
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Exam 14: Partnerships and Limited Liability Entities

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

Correct AnswerverifiedShow Answer

A partnership must provide any information to the partners that the partners would need to calculate deductions not permitted at the partnership level, such as for oil and gas depletion or the corporate dividends received deduction.

Correct AnswerverifiedShow Answer

On a corporate Form 1120, Schedule M-1 (or M-3) is used to reconcile book and tax income, and Schedule M-2 reconciles retained earnings to the amounts shown on Schedule L. How are these reconciliations accomplished on a partnership return? What additional information must be provided?

Correct AnswerverifiedA partnership is not a taxpaying entity ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedDistributions upon liquidation must foll...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A partnership is an association formed by two or more taxpayers (which may be any type of entity) to carry on a trade or business.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Section 721 provides that no gain or loss is recognized on a contribution of property to a partnership in exchange for an interest in the partnership. An exception might apply if the taxpayer receives a cash distribution from the partnership soon after the property contribution is made.

Correct AnswerverifiedShow Answer

Which of the following statements is correct regarding the manner in which partnership liabilities are reflected in the partners' bases in their partnership interests?

Correct AnswerverifiedShow Answer

Correct Answerverified$90,000. C...View AnswerShow Answer

Correct Answerverified$116,400. Katherine's initial basis of $...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe recourse debt will be allocated $360...View AnswerShow Answer

Match each of the following statements with the terms below that provide the best definition. -Schedule K-1

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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A partnership is not a taxpaying entity ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Distributions upon liquidation must foll...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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$90,000. C...
View Answer

Correct Answer
verified
$116,400. Katherine's initial basis of $...
View Answer

Correct Answer
verified

Correct Answer
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The recourse debt will be allocated $360...
View Answer

Correct Answer
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