Mod 37 Wrong Answers

Question 1

If you receive a 10% capital interest in XYZ partnership on the date you were admitted to the partnership, XYZ’s net assets had a basis of $40,000 and a FMV of $80,000.

X must recognize compensation income of…
And has a basis of?

Answer 1

Compensation income = $8,000

Basis = $8,000

Question 2

How do you calculate gain when partner contributes property with a mortgage?

Answer 2

Gain =
Portion of mortgage allocated to other partners
- adj. basis of contributed property

Question 3

How do you calculate partner’s basis when partner contributes property with a mortgage?

Answer 3

Adjusted basis of contributed property
- portion of mortgage allocated to other partners
= partner’s basis

Question 4

What is the principal business activity of a restaurant?

Answer 4

Food service

Question 5

What is the principal product of service of a restaurant?

Answer 5

Food and drinks

Question 6

Where are salaries and wages reported on form 1065? 2

Answer 6

line 1b

Line 1c

Question 7

If there is $50,000 in depreciation expense and the company elects to expense $25,000 of cost of the Sec. 179 assets, where depreciation includes 179 expense deduction. Depreciation expense is…

Answer 7

$25,000 ($50,000 - $25,000)

Question 8

In line 21 of form 1065, you should…

Answer 8

Add the total deductions

Question 9

When dividends of $1,500 are given for a tax return, they are considered…

Answer 9

Both qualified and ordinary dividends

Question 10

The section 179 deduction on schedule K goes on…

Answer 10

Line 12

Question 11

Tax exempt interest income, where does it go on schedule K?

Answer 11

Line 18a

Question 12

Distributions of cash and other marketable securities, where does it go on Schedule K?

Answer 12

Line 19a

Question 13

On schedule, K-1 a partnership in Florida is…

Answer 13

Considered a domestic partnership (so check H)

Question 14

For schedule K-1, when it asks what type of entity is this partner, it is?

Answer 14

Individual (line I1)

Question 15

On schedule K-1, when it asks for the partner’s share or profit, loss or capital, and it is an equal partner of 50%, you should…

Answer 15

1 List 50% for profit, loss and capital

2 Under “Ending” (line J)

Question 16

Recourse debt on schedule K-1 is…

Answer 16

Multiplied by the partner’s interest

Question 17

Under L, of schedule K-1 you should check…

Answer 17

Tax Basis

Question 18

On schedule K-1 you should list partner’s beginning…

Answer 18

Capital account

Question 19

Ordinary income on schedule K-1 is calculated by…

Answer 19

Multiplying ordinary income on schedule K by the partner’s %

Question 20

For tax exempt income and Nondeductible expenses, what goes below line 18…

Answer 20

“A”

Question 21

For distributions what goes below line 19?

Answer 21

“A”

Question 22

% of ordinary income is added to guaranteed payments where on schedule K-1?

2) what goes next to it?

Answer 22

Line 14 self employment earnings (first line)

2) “A”

Question 23

What goes in the second part of line 14 self employed earnings?

2) what does next to this item?

Answer 23

(Gross income - guaranteed payments) X partner’s % interest

2) “C”

Question 24

On line L, the current year increase is calculated by adding all of the year’s income and subtracting 3

Answer 24

1 short term capital loss

2 sec. 179 deduction

3 other deductions

Question 25

On schedule K-1, the lines that should be filled out are…4

Answer 25

1 beginning capital account
2 current year increase
3 withdrawals and distributions
4 ending capital account

Question 26

Up to the amount of basis, when there is a distribution can…

2) example

Answer 26

Deduct as ordinary income

Ex. 5,000 basis, $6,000 loss and $300 capital gain
$5,300 can be deducted as ordinary loss

Question 27

The deductibility of partnership losses is limited to amount of partner’s at risk basis and will also be subject to…

Answer 27

Passive activity loss limitations (if applicable)

Question 28

At risk and passive activity loss limitations apply at…

2) rather than…

Answer 28

Apply at partner level

2) rather than partnership level

Question 29

In computing the partnership ordinary income, charitable deductions…

Answer 29

Cannot be deducted

Question 30

When a partnership has taxable income of $80,000 in 2013, how much taxable income does a cash basis partner pay when they receive $40,000 in 2013 and $40,000 in 2014?

Answer 30

$80,000, doesn’t matter if distributed

Question 31

If stock contributed by an equal partner is sold by the partnership, the equal partner…

Answer 31

Pays the entire capital gain

Question 32

If a partnership had $20,000 in ordinary income in fiscal year June 30th, 2013 and $40,000 in ordinary income in fiscal year June 30th, 2014. How much ordinary income would a 60% cash basis partner report for 2013 calendar year return?

Answer 32

$10,000 = ($20,000 X 60% interest)

Question 33

In a family partnership, services performed by family members must first…

Answer 33

Be reasonably compensated before income is allocated

Question 34

A decrease in a partner’s share of partnership liabilities is deemed to be…2

Answer 34

1 distribution of money and

2 reduces partner’s basis of partnership interest

Question 35

A partnership will be terminated when…3

Answer 35

1 there are no longer at least 2 partners

2 no part of operating in partnership carried on by any partners

3 within 12 months sale of over 50% interest

Question 36

Although the sale of a partnership interest generally results in capital gain or loss, ordinary income must be recognized to the extent of the selling partner’s…2

Answer 36

1 Share of unrealized receivables and

2 appreciated inventory

Question 37

In a nonliquidating partnership distribution, a gain or loss is…

Answer 37

Generally not recognized

Question 38

In a nonliquidating partnership distribution, the basis of property distributed to a partner is…

Answer 38

Generally the same as partnership’s former basis for property

Question 39

Transferred basis

Answer 39

Partnership’s former basis for property

Question 40

If partnership property with a basis of $7,000 is distributed to a partner who’s basis in the partnership is $6,000, the property’s basis…

Answer 40

Will be limited to $6,000

Question 41

The distributed basis of partnership property, distributed to a partner is…

Answer 41

Limited to that partner’s basis

Question 42

In determining the basis for land received in a nonliquidating partnership distribution, if both cash and noncash property are received in a single distribution. The basis of the partnership interest is…2

Answer 42

1 first reduced by cash

2 the remaining basis is allocated to the land

Question 43

In a nonliquidating distribution loss will

Answer 43

Not be recognized

Question 44

In a nonliquidating distribution gain will be recognized only if…

Answer 44

Cash received exceeds basis for partner’s partnership interest

Question 45

In a liquidating distribution the basis for partnership interest is first reduced by the amount of money received, it is then reduced by…

Answer 45

Partnership’s basis for any unrealized receivables and inventory
Received

Question 46

In a liquidating distribution the basis for partnership interest received after being reduced by money, inventory and unrealized receivables, any remaining basis for partnership interest allocated to…

Answer 46

Other property received in proportion to adjusted bases (not FV)

Question 47

In a complete liquidation when only money and inventory is received, loss can be calculated by…

Answer 47

Subtracting money and basis of inventory from partner’s basis