ACC 455 Week 5 Problem Set

ACC 455 Week 5 Problem Set

C:9-32 Partnership Income and Basis Adjustments. Mark and Pamela are equal partners in MP

Partnership. The partnership, Mark, and Pamela are calendar year taxpayers. The partnership

incurred the following items in the current year:

Sales $450,000

Cost of goods sold 210,000

Dividends on corporate investments 15,000

Tax-exempt interest income 4,000

Section 1245 gain (recapture) on equipment sale 33,000

Section 1231 gain on equipment sale 18,000

Long-term capital gain on stock sale 12,000

Long-term capital loss on stock sale 10,000

Short-term capital loss on stock sale 9,000

Depreciation (no Sec. 179 or bonus depreciation components) 27,000

Guaranteed payment to Pamela 30,000

Meals and entertainment expenses 11,600

Interest expense on loans allocable to:

Business debt 42,000

Stock investments 9,200

Tax-exempt bonds 2,800

Principal payment on business loan 14,000

Charitable contributions 5,000

Distributions to partners ($40,000 each) 80,000

1. Compute the partnership’s ordinary income and separately stated items.

2. Show Mark’s and Pamela’s shares of the items in Part a.

3. Compute Mark’s and Pamela’s ending basis in their partnership interests assuming

their beginning balances are $150,000 each.

C:10-1 Javier is retiring from the JKL Partnership. In

January of the current year, he has a $100,000

basis in his partnership interest when he receives a

$10,000 cash distribution. The partnership plans

to distribute $10,000 each month this year, and

Javier will cease to be a partner after the December

payment. Is the January payment to Javier a current

distribution or a liquidating distribution?