CPA prep

Ball and Baig are equal general partners in the firm of Games Associates. On January 1 of the current year, each partner's basis in their Games partnership interest was $50,000. During the year, Games borrowed $80,000, for which Ball and Baig are personally liable. Games sustained an ordinary business loss of $30,000 for the current year. The basis of each partner's interest in Games at the end of the current year is:

• $75,000

• $35,000

• $50,000

• $65,000

Answer explanation

Start with 50K, add share of liabilities 40K minus share of loss 15K

On January 2, Year 1, Arch and Bean contribute cash equally to form the JK Partnership. Arch and Bean share profits and losses in a ratio of 75% to 25%, respectively. For Year 1, the partnership's ordinary income was $40,000. A distribution of $5,000 was made to Arch during Year 1. What is Arch's share of taxable income for Year 1?

• $30,000

• $5,000

• $10,000

• $20,000

Answer explanation

Ignore the distribution information - that's a distractor

Dale's distributive share of income from the calendar year partnership of Dale & Eck was $50,000 in Year 1. On December 15, Year 1, Dale, who is a cash-basis taxpayer, received a $27,000 distribution of the partnership's Year 1 income, with the $23,000 balance paid to Dale in May Year 2. In addition, Dale received a $10,000 interest-free loan from the partnership in Year 1. This $10,000 is to be offset against Dale's share of Year 2 partnership income. What total amount of partnership income is taxable to Dale in Year 1?

• $60,000

• $27,000

• $37,000

• $50,000

Answer explanation

Biggest distractor - IGNORE everything else - Just focus on partnership income

In the current year, a partnership reported the following items:

Fees earned 500,000; Salary expense 100,000; Utility expense 5,000; Charitable contributions 8,000; Long-term capital gain 2,000; Office supplies 500

What is the partnership's ordinary income?

• $396,500

• $386,500

• $388,500

• $394,500

Answer explanation

Remember separately stated items are not part of ordinary income calculations - like Capital Gains and Losses and Charitable contributions

As a general partner in Greenland Associates, an individual's share of partnership income for the current tax year is $25,000 ordinary business income and a $10,000 guaranteed payment. The individual also received $5,000 in cash distributions from the partnership. What income should the individual report from the interest in Greenland?

• $40,000

• $50,000

• $25,000

• $35,000

Answer explanation

Guaranteed payments part of partner's income. Ignore distribution

Jetson and Tomson are equal partners in JT Partnership, which has the following income and expense items: Sales $100,000; Interest income from checking account 1,000; Charitable contributions 3,000; Employee wages 4,000; Cost of goods sold 50,000

What is the total of the non-separately stated partnership income?

• $47,000

• $46,000

• $44,000

• $43,000

Answer explanation

Identify separately stated items and leave them out for ordinary income computation

Garner is a 25 percent partner in Classic General Partnership. On February 3, Garner's tax basis in Classic was $10,000 when she received a cash distribution of $5,000. Classic reported the following for the same year: U.S. Treasury interest $ 30,000; Ordinary business income 120,000

What amount of income from Classic should Garner include in her gross income for that year?

• $42,500

• $7,500

• $37,500

• $30,000

Answer explanation

Same - ignore distributions, ignore separately stated items

Under the Internal Revenue Code sections pertaining to partnerships, guaranteed payments are payments to partners for:

• Sale of partnership assests at guaranteed prices

• Payment of principal on secured notes at maturity

• Timely payments of periodic interest on partner's loans to partnership

• Services or use of capital without regard to partnership income

Answer explanation

Without regard to partnership income - that's the key phrase

Alt Partnership, a cash basis calendar year entity, began business on October 1, Year 1. Alt incurred and paid the following in Year 1: Legal fees to prepare the partnership agreement 23,000; Accounting fees to prepare the representations in offering materials 15,000

Alt elected to amortize costs. What was the maximum amount that Alt could deduct on the Year 1 partnership return?

• $0

• $5,300

• $300

• $4,600

Answer explanation

Upto $5,000 first year (phaseout begins at $50K, remaining amortized over 180 months). Syndication fees not deductible or amortizable.

Gavin, a 50 percent partner in the ABC Partnership, had a $4,000 basis at the beginning of the preceding year. During the preceding year, ABC incurred a $12,000 loss. In the current year, ABC reported $7,000 of ordinary income and made a $1,000 pro rata distribution. What is Gavin's basis at the end of the current year?

• $6,500

• $1,000

• $3,000

• $3,500

Answer explanation

$4K-$6K = 0 basis and $2K suspended loss

$3.5K income - $0.5K distribution = $3K basis

Deduct $2K suspended loss for $1K basis.