46. LO.7, 13 Assume the same facts as in Problem 45. What income, gains, losses, and deductions does Amy report on her income tax return? Based on the information provided, what other calculations is she required to make?
47. LO.11 Assume the same facts as in Problem 45. Prepare Amy’s capital account rollforward from the beginning to the end of the tax year. How does her capital account differ from her basis as calculated in Problem 45?
48. LO.7, 9, 13 The KL Partnership is owned equally by Kayla and Lisa. Kayla’s basis is $20,000 at the beginning of the tax year. Lisa’s basis is $16,000 at the beginning of the year. KL reported the following income and expenses for the current tax year:
Sales revenue $150,000
Cost of sales 80,000
Distribution to Lisa 15,000
Depreciation expense 20,000
Rent expense 18,000
Long-term capital gain 6,000
Payment to Mercy Hospital for Kayla’s medical expenses 12,000
a. Determine the ordinary partnership income and separately stated items for the partnership.
b. Calculate Kayla’s basis in her partnership interest at the end of the tax year. What items should Kayla report on her Federal income tax return?
c. Calculate Lisa’s basis in her partnership interest at the end of the tax year. What items should Lisa report on her Federal income tax return?
49. LO.7, 9, 12, 13 How would your answers in Problem 48 change if partnership revenues were $100,000 instead of $150,000?
50. LO.3, 7, 9, 10 Suzy contributed business-related assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in the Suz-Anna Partnership. Anna contributed land and a building valued at $640,000 (basis of $380,000) in exchange for the remaining 60% interest. Anna’s property was encumbered by a qualified nonrecourse debt of $100,000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year:
Utilities, salaries, and other operating expenses 360,000
Short-term capital gain 10,000
Tax-exempt interest income 4,000
Charitable contributions 8,000
Distribution to Suzy 10,000
Distribution to Anna 20,000
During the current tax year, Suz-Anna refinanced the land and building. At the end of the year, Suz-Anna had recourse debt of $100,000 for partnership accounts payable and qualified nonrecourse debt of $200,000.
a. What is Suzy’s basis after formation of the partnership? Anna’s basis?
b. What income and separately stated items does the partnership report on Suzy’s
Schedule K–1? What items does Suzy report on her tax return?
c. Assume that all partnership debts are shared proportionately. At the end of the tax year, what are Suzy’s basis and amount at risk in her partnership interest?
51. LO.11 Assume the same facts as in Problem 50, and assume that Suz-Anna prepares the capital account rollforward on the partners’ Schedules K–1 on a tax basis.
a. What is Suzy’s capital account balance at the beginning of the tax year?
b. What is Suzy’s capital account balance at the end of the tax year?
c. What accounts for the difference between Suzy’s ending capital account and her ending tax basis in the partnership interest?
52. LO.3, 7, 9, 10 Assume the same facts as in Problem 50, except that Suz-Anna was formed as an LLC instead of a general partnership.
a. How would Suz-Anna’s ending liabilities be treated?
b. How would Suzy’s basis and amount at risk be different?
53. LO.3, 7, 9, 12 Bryan and Cody each contributed $120,000 to the newly formed BC
Partnership in exchange for a 50% interest. The partnership used the available funds to acquire equipment costing $200,000 and to fund current operating expenses. The partnership agreement provides that depreciation will be allocated 80% to Bryan and 20% to Cody. All other items of income and loss will be allocated equally between the partners.
Upon liquidation of the partnership, property will be distributed to the partners in accordance with their capital account balances. Any partner with a negative capital account must contribute cash in the amount of the negative balance to restore the capital account to $0.
In its first year, the partnership reported an ordinary loss (before depreciation) of $80,000 and depreciation expense of $36,000. In its second year, the partnership reported $40,000 of income from operations (before depreciation), and it reported depreciation expense of $57,600.
a. Calculate the partners’ bases in their partnership interests at the end of the first and second tax years. Are any losses suspended? Explain.
b. Does the allocation provided in the partnership agreement have economic effect?