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Chapter 21 Dispositions of Partnership Interests and Partnership Distributions

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Question;Chapter 21;Dispositions of Partnership Interests and Partnership;Distributions;True / False Questions;1. Jason is;a 25% partner in the JJM Partnership when he sells his entire interest to;Lavelle for $76,000. At the time of the sale, Jason's basis in JJM is $87,000.;JJM does not have any debt or hot assets. Jason's will recognize a gain of;$11,000 on the sale of his partnership interest.;True False;2. A;partner's debt relief from the sale of a partnership interest will decrease his;outside basis.;True False;3. In the;sale of a partnership interest, a selling partner will recognize ordinary income;(rather than capital gain) when the partnership assets include cash and land;held for 5 years as an investment.;True False;4. Hot;assets include assets except cash, capital assets and ?1231 assets.;True False;5. Federico;is a 30% partner in the FRM Partnership when he sells his entire interest to;Maria for $98,000. At the time of the sale, Federico's basis in FRM is $74,000.;FRM does not have any debt. In addition, FRM's assets include accounts;receivable with zero tax basis and $21,000 fair market value at the date of the;sale. Federico will recognize ordinary income of $24,000 on the sale of his;partnership interest.;True False;6. Under the;entity concept, a partnership interest is an intangible asset similar to an;ownership interest in a corporation. As such, a partnership interest is treated;as a capital asset, the disposal of which results in capital gain or loss.;True False;7. If the;partnership has hot assets at the time a partnership interest is sold, the;selling partner must allocate a portion of the sale proceeds to these assets;and recognize ordinary income (loss).;True False;8. The;purpose of hot asset rules is to ensure that selling partners recognize all;gain or loss on the sale of their partnership interests as capital.;True False;9. When;determining a partner's gain on sale of his partnership interest, the selling partner;must include her share of partnership debt in the amount realized.;True False;10. Operating;distributions terminate a partner's interest in the partnership.;True False;11. A partner;that receives cash in an operating distribution recognizes loss if the cash;distributed is less than the partner's outside basis in the partnership;immediately before the distribution.;True False;12. Cash;distributions include decreases in a partner's share of partnership;liabilities.;True False;13. In an;operating distribution, when a partnership distributes property other than;money with a basis that exceeds the partner's outside basis, the partner;assigns a carryover basis to the distributed assets and recognizes a gain.;True False;14. A partner;that receives cash in an operating distribution recognizes gain if the cash;distributed exceeds the partner's outside basis in the partnership immediately;before the distribution.;True False;15. Barry has;a basis in his partnership interest of $50,000 when the partnership distributes;$60,000 to Barry. As a result of the distribution, Barry reduces his basis in;the partnership interest to $0, has a $60,000 basis in the cash received, and;he recognizes a gain of $10,000 on the distribution.;True False;16. The;partnership making an operating distribution will recognize gain or loss only;when the partner that receives the distribution recognizes gain or loss.;True False;17. Jaime has;a basis in her partnership interest of $50,000 when the partnership distributes;(in an operating distribution) two parcels of land to Jaime, each valued at;$30,000. The basis in parcel A is $40,000 and the basis in parcel B is $20,000.;Jaime allocates $20,000 of basis to parcel A and $30,000 of basis to parcel B.;True False;18. A partner;will recognize a loss from a liquidating distribution when the distribution;includes only cash, unrealized receivables, and inventory and the partner's;outside basis is less than the sum of the bases of the distributed assets.;True False;19. Ted is a;30% partner in the TDW Partnership with an outside basis of $20,000. TDW;distributes $15,000 of cash in complete liquidation of Ted's interest. Ted;recognizes a capital loss of $5,000 on the distribution.;True False;20. Catherine;is a 30% partner in the ACW Partnership with an outside basis of $20,000. ACW;distributes land with a basis of $12,000 and fair value of $18,000 to Catherine;in complete liquidation of her interest. Catherine recognizes a capital loss of;$2,000 on the distribution.;True False;21. A partner;recognizes gain when he receives cash in excess of his outside basis in a;liquidating distribution.;True False;22. A partner;recognizes a loss when he receives cash and other property with inside bases;greater than his outside basis in a liquidating distribution.;True False;23. Martha is;a 40% partner in the MMM Partnership with an outside basis of $50,000. MMM;distributes $40,000 cash and accrual basis accounts receivable with a basis and;fair market value of $20,000. Martha does not recognize gain or loss on the;distribution and takes a basis in the cash of $40,000 and a basis in the;receivables of $10,000.;True False;24. A;disproportionate distribution is a distribution in which the partner's share of;the partnership's hot assets either increases or decreases as a result of the;distribution.;True False;25. Inventory;is substantially appreciated if the fair market value of all inventory items;exceeds 100% of their basis to the partnership.;True False;26. A;disproportionate distribution of hot assets is treated as though the;partnership distributes a proportionate share of hot assets to the partner and;then the partner sells those hot assets back to the partnership at fair market;value in exchange for a portion of the assets actually received in the distribution.;True False;27. A ?754;election is made by a distributee partner for a tax year in which (1) the;distributee partner recognizes gain or loss on a distribution from a;partnership or (2) the distributee partner's basis in distributed assets differs;from the partnership's inside basis in those assets.;True False;Multiple Choice Questions;28. Unrealized;receivables include accounts receivable for which of the following;partnerships?;A. Accrual;method partnerships.;B. Cash;method partnerships.;C. Neither;cash nor accrual method partnerships.;D. Both cash;and accrual method partnerships.;29. Jackson is;a 30% partner in the JJM Partnership when he sells his entire interest to;Rhonda for $112,000 cash. At the time of the sale, Jackson's basis in JJM is;$64,000. JJM does not have any debt or hot assets. What is Jackson's gain or;loss on the sale of his interest?;A. $48,000;capital gain.;B. $48,000;ordinary income.;C. $24,000;capital gain and $24,000 ordinary income.;D. Gain or;loss cannot be determined.;30. Which of;the following statements regarding the sale of a partnership interest is false?;A. The;seller's primary tax concern in a partnership interest sale is calculating the;amount and character of gain or loss on the sale.;B. The;selling partner determines the gain or loss as the difference between the;amount realized and her outside basis in the partnership.;C. Hot;assets change the character of a gain on the sale from ordinary income to;capital gain.;D. Any debt;relief increases the amount the partner realizes from the sale.;31. At the end;of last year, Cynthia, a 20% partner in the five-person CYG partnership, has an;outside basis of $30,000 including her $15,000 share of CYG debt. On January 1;of the current year, Cynthia sells her partnership interest to Roger for a cash;payment of $22,500 and the assumption of her share of CYG's debt. CYG has no;hot assets. What is the amount and character of Cynthia's recognized gain or;loss on the sale?;A. $7,500;capital loss.;B. $7,500;ordinary loss.;C. $7,500;capital gain.;D. $7,500;ordinary income.;32. Which of;the following assets would not be classified as hot assets?;A. Inventory.;B. Depreciation;recapture.;C. Cash.;D. Accounts;receivable for a cash method taxpayer.;33. The SSC;Partnership balance sheet includes the following assets on December 31 of the;current year;Susan, a 1/3 partner, has an adjusted basis of $90,000 for;her partnership interest. If Susan sells her entire partnership interest to;Emma for $120,000 cash, how much capital gain and ordinary income must Susan;recognize from the sale?;A. $30,000;ordinary income;B. $30,000;capital gain;C. $10,000;ordinary income, $20,000 capital gain;D. $10,000;capital gain, $20,000 ordinary income;34. The SSC;Partnership balance sheet includes the following assets on December 31 of the;current year;Susan, a 1/3 partner, has an adjusted basis of $90,000 for;her partnership interest. If Susan sells her entire partnership interest to;Emma for $100,000 cash, what is the amount and character of Susan's gain or;loss from the sale?;A. $10,000;capital gain;B. $10,000;ordinary income;C. $20,000;ordinary income, $10,000 capital gain;D. $10,000;capital loss, $20,000 ordinary income;35. Daniel;acquires a 30% interest in the PPZ Partnership from Paolo, an existing partner;for $39,000 of cash. The PPZ Partnership includes $10,000 of recourse;liabilities. What is Daniel's basis in his partnership interest?;A. $39,000.;B. $42,000.;C. $46,000.;D. $49,000.;36. The SSC;Partnership balance sheet includes the following assets on December 31 of the;current year;Which of SSC's assets are considered hot assets under;?751(a)?;A. Cash and;accounts receivable.;B. Cash and land.;C. Accounts;receivable and land.;D. Accounts;receivable and inherent recapture under ?1245 in the equipment.;37. Under;which of the following circumstances will a selling partner's capital account;not carry over to the purchaser of the partnership interest?;A. A selling;partner's capital account will always carry over to the purchaser.;B. A selling;partner's capital account will never carry over to the purchaser.;C. A selling;partner's capital account will not carry over to the purchaser when the;purchaser purchases the interest with property other than cash.;D. A selling;partner's capital account will not carry over to the purchaser when the selling;partner contributed built-in loss property to the partnership.;38. Shauna is;a 50% partner in the SH Partnership. Shauna sells one-half of her interest to;Kara for $60,000 cash. Just before the sale, Shauna's basis in her entire;partnership interest is $150,000 including her $60,000 share of the partnership;liabilities. SH's assets on the sale date are as follows;What is the amount and character of Shauna's gain or loss on;the sale?;A. $30,000 ordinary;income, $15,000 capital loss.;B. $45,000;capital gain.;C. $15,000;capital loss.;D. $15,000;ordinary income and $30,000 capital gain.;39. Under;which of the following circumstances will a partner recognize a gain from an;operating distribution?;A. A partner;will never recognize a gain from an operating distribution.;B. A partner;will recognize a gain from an operating distribution when the partnership;distributes property other than money with an inside basis greater than the;partner's basis in the partnership interest.;C. A partner;will recognize a gain from an operating distribution when the partnership;distributes money in an amount that is less than the partner's basis in the;partnership interest.;D. A partner;will recognize a gain from an operating distribution when the partnership;distributes money in an amount that is greater than the partner's basis in the;partnership interest.;40. Under;which of the following circumstances will a partner recognize a loss from an;operating distribution?;A. A partner;will never recognize a loss from an operating distribution.;B. A partner;will recognize a loss from an operating distribution when the partnership;distributes property other than money with an inside basis greater than the;partner's basis in the partnership interest.;C. A partner;will recognize a loss from an operating distribution when the partnership;distributes money in an amount that is less than the partner's basis in the;partnership interest.;D. A partner;will recognize a loss from an operating distribution when the partnership;distributes money in an amount that is greater than the partner's basis in the;partnership interest.;41. In which;type of distribution may a partner recognize a loss on the distribution?;A. Operating;distributions.;B. Liquidating;distributions.;C. Neither;operating nor liquidating distributions.;D. Both;operating and liquidating distributions.;42. Sarah is a;50% partner in the SF Partnership and has an outside basis of $56,000 at the;end of the year prior to any distributions. On December 31, Sarah receives a;proportionate operating distribution of $20,000 cash. What is the amount and;character of Sarah's recognized gain or loss and what is her basis in her;partnership interest?;A. $0 gain;$36,000 basis;B. $0 gain;$56,000 basis;C. $20,000;ordinary income, $56,000 basis;D. $20,000 ordinary;income, $36,000 basis;43. Riley is a;50% partner in the RF Partnership and has an outside basis of $56,000 at the;end of the year prior to any distributions. On December 31, Riley receives a;proportionate operating distribution of $6,000 cash and a parcel of land with a;$14,000 fair value and an $8,000 basis to RF. What is the amount and character;of Riley's recognized gain or loss and what is his basis in his partnership;interest?;A. $0 gain;$36,000 basis;B. $0 gain;$42,000 basis;C. $0 gain;$50,000 basis;D. $0 gain;$56,000 basis;44. Riley is a;50% partner in the RF Partnership and has an outside basis of $56,000 at the;end of the year prior to any distributions. On December 31, Riley receives a;proportionate operating distribution of $6,000 cash and a parcel of land with a;$14,000 fair value and an $8,000 basis to RF. What is Riley's basis in the;distributed property?;A. Cash;$6,000, land $0;B. Cash;$6,000, land $8,000;C. Cash;$6,000, land $14,000;D. Cash;$6,000, land $22,000;45. Kristen;and Harrison are equal partners in the KH Partnership. The partners formed the;partnership 5 years ago by contributing cash. Prior to any distributions;Harrison has a basis in his partnership interest of $44,000. On December 31, KH;makes a proportionate operating distribution of $50,000 cash to Harrison. What;is the amount and character of Harrison's recognized gain or loss and what is;his remaining basis in KH?;A. $0 gain;$0 basis;B. $6,000;capital gain, $0 basis;C. $6,000;capital loss, $0 basis;D. $6,000;capital gain, $44,000 basis;46. Jenny has;a $54,000 basis in her 50% partnership interest in the JM Partnership before;receiving any distributions. This year JM makes a proportionate current;distribution to Jenny of a parcel of land with an $80,000 fair value and a;$64,000 basis to JM. The land is encumbered with a $30,000 mortgage (JM's only;liability). What is Jenny's basis in the land and her remaining basis in JM;after the distribution?;A. $80,000;land basis, $0 JM basis;B. $64,000;land basis, $0 JM basis;C. $64,000;land basis, $5,000 JM basis;D. $80,000;land basis, $5,000 JM basis;47. Marcella;has a $65,000 basis in her 50% partnership interest in the JM Partnership;before receiving any distributions. This year JM makes a proportionate current;distribution to Marcella of $10,000 cash and inventory with an $80,000 fair;value and a $40,000 basis to JM. What is Marcella's basis in the inventory and;her remaining basis in JM after the distribution?;A. $80,000;inventory basis, $0 JM basis;B. $40,000;inventory basis, $0 JM basis;C. $40,000;inventory basis, $15,000 JM basis;D. $80,000;inventory basis, $15,000 JM basis;48. Which of;the following statements is true regarding partnership operating distributions?;A. Partners;will never recognize a gain on an operating distribution.;B. Partners;receiving a distribution of property other than money will take a basis in the;property equal to its fair market value.;C. Partners;will never recognize a loss on an operating distribution.;D. None of;these statements is true.;49. Which of;the following statements is true regarding partnership operating distributions?;A. If a;partner's outside basis is greater than the bases of the assets distributed in;an operating distribution, the partner will recognize a loss.;B. If a;partner's outside basis is less than the bases of the assets distributed in an;operating distribution, the partner will recognize a loss.;C. If a;partner's outside basis is greater than the bases of the assets distributed in;an operating distribution, the partner will recognize a gain.;D. None of;these statements is true.;50. Which of;the following is true concerning a partner's basis in assets (other than money);distributed in an operating distribution?;A. A;partner's bases in the distributed assets will be greater than the;partnership's bases in the assets.;B. A;partner's bases in the distributed assets will be equal to the partnership's;bases in the assets.;C. A;partner's bases in the distributed assets will be less than or equal to the;partnership's bases in the assets.;D. None of;these statements is true.;51. Under what;conditions will a partner recognize a gain in a liquidating distribution?;A. When a;partnership distributes only money and the amount of the distribution exceeds;the partner's outside basis.;B. When a;partnership distributes only money and the amount of the distribution is less;than the partner's outside basis.;C. When a partnership;distributes money, hot assets, and other property and the amount of the;distribution exceeds the partner's outside basis.;D. When a;partnership distributes money, hot assets, and other property and the amount of;the distribution is less than the partner's outside basis.;52. Which of;the following statements is false concerning partnership liquidating;distributions?;A. A partner;who receives a liquidating distribution can retain an interest in the;partnership.;B. A;partnership agreement may restrict the sale of a partnership making a;liquidating distribution the only way a partner can close out his interest in;the partnership.;C. Liquidating;a single partner's interest is similar in concept to a corporate redemption of;a shareholder's interest.;D. None of;these statements is false.;53. Which of;the following statements regarding a partner's basis of inventory received in a;liquidating distribution is true?;A. Partners;may either increase or decrease the basis in inventory distributed in a;liquidating distribution.;B. Partners;may only increase the basis in inventory distributed in a liquidating;distribution.;C. Partners;may only decrease the basis in inventory distributed in a liquidating;distribution.;D. None of;these statements is true.;54. Randolph;is a 30% partner in the RD Partnership. On January 1, RD distributes $26,000;cash to Randolph in complete liquidation of his interest. RD has only capital;assets and no liabilities at the date of the distribution. Randolph's basis in;RD is $37,000. What is the amount and character of Randolph's gain or loss on;the distribution?;A. $0 gain;or loss.;B. $11,000;capital gain.;C. $11,000;ordinary income.;D. $11,000;capital loss.;55. Randolph;is a 30% partner in the RD Partnership. On January 1, RD distributes $15,000;cash and inventory with a fair value of $20,000 (inside basis of $10,000) to;Randolph in complete liquidation of his interest. RD has no liabilities at the;date of the distribution. Randolph's basis in RD is $27,000. What is the amount;and character of Randolph's gain or loss on the distribution?;A. $0 gain;or loss.;B. $8,000;capital gain.;C. $8,000;capital loss.;D. $2,000;capital loss.;56. Randolph;is a 30% partner in the RD Partnership. On January 1, RD distributes $15,000;cash, inventory with a fair value of $20,000 (inside basis of $10,000), and a;parcel of land with a fair value of $10,000 (inside basis of $5,000) to;Randolph in complete liquidation of his interest. RD has no liabilities at the;date of the distribution. Randolph's basis in RD is $37,000. What is Randolph's;basis in the distributed inventory and land?;A. $10,000;inventory, $10,000 land;B. $10,000;inventory, $5,000 land;C. $20,000;inventory, $10,000 land;D. $10,000;inventory, $12,000 land;57. Randolph;is a 30% partner in the RD Partnership. On January 1, RD distributes $15,000;cash, an investment with a fair value of $20,000 (inside basis of $10,000), and;a parcel of land with a fair value of $10,000 (inside basis of $5,000) to;Randolph in complete liquidation of his interest. RD has no liabilities at the;date of the distribution. Randolph's basis in RD is $48,000. What is Randolph's;basis in the distributed investment and land?;A. $10,000;investment, $5,000 land;B. $22,000;investment, $11,000 land;C. $20,000;investment, $10,000 land;D. $20,000;investment, $13,000 land;58. Jessica is;a 25% partner in the JRL Partnership. On January 1, JRL distributes $40,000;cash to Jessica. JRL has no hot assets or liabilities at the date of the;distribution. Jessica's basis in JRL is $28,000. What is the amount and;character of Jessica's gain or loss from the distribution?;A. $0;B. $12,000;ordinary income;C. $12,000;capital loss;D. $12,000;capital gain;59. Which of;the following statements regarding liquidating distributions is true?;A. A partner;will recognize a gain when the partnership distributes only money and the;amount is greater than the partner's outside basis.;B. A partner;will recognize a gain when the partnership distributes only money and hot;assets and the inside bases of the distributed assets are greater than the;partner's outside basis.;C. A partner;will recognize a gain when the partnership distributes money, hot assets, and;other property and the inside bases of the distributed assets are greater than;the partner's outside basis.;D. A partner;will recognize a gain when the partnership distributes only money and the;amount is less than the partner's outside basis.;60. Daniela is;a 25% partner in the JRD Partnership. On January 1, JRD makes a liquidating;distribution of $20,000 cash and inventory with a $15,000 fair value (inside;basis $5,000) to Daniela. JRD has no liabilities at the date of the;distribution. Daniela's basis in JRD is $21,000. What is the amount and;character of Daniela's gain or loss from the distribution?;A. $0;B. $14,000;ordinary income;C. $4,000;capital loss;D. $4,000;capital gain;61. Daniela is;a 25% partner in the JRD Partnership. On January 1, JRD distributes $16,000;cash, inventory with a $16,000 fair value (inside basis $8,000), and accounts;receivable with a fair value of $8,000 (inside basis of $0) to Daniela. JRD has;no liabilities at the date of the distribution. Daniela's basis in JRD is;$21,000. What is Daniela's basis in the distributed inventory and accounts;receivable?;A. $8,000;inventory, $0 accounts receivable;B. $6,000;inventory, $1,000 accounts receivable;C. $5,000;inventory, $0 accounts receivable;D. $16,000;inventory, $8,000 accounts receivable;62. Daniela is;a 25% partner in the JRD Partnership. On January 1, JRD distributes $16,000;cash, inventory with a $16,000 fair value (inside basis $8,000), and accounts;receivable with a fair value of $8,000 (inside basis of $12,000) to Daniela.;JRD has no liabilities at the date of the distribution. Daniela's basis in JRD;is $20,000. What is Daniela's basis in the distributed inventory and accounts;receivable?;A. $2,000;inventory, $2,000 accounts receivable;B. $8,000;inventory, $12,000 accounts receivable;C. $0;inventory, $4,000 accounts receivable;D. $16,000;inventory, $8,000 accounts receivable;63. Daniela is;a 25% partner in the JRD Partnership. On January 1, JRD makes a liquidating;distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis;$8,000), and accounts receivable with a fair value of $8,000 (inside basis of;$12,000) to Daniela. JRD has no liabilities at the date of the distribution.;Daniela's basis in JRD is $20,000. What is the amount and character of;Daniela's gain or loss from the distribution?;A. $0;B. $16,000;ordinary income;C. $16,000;capital gain;D. $20,000;capital gain;64. Tyson is a;25% partner in the KT Partnership. On January 1, KT makes a liquidating;distribution of $16,000 cash and land with a $16,000 fair value (inside basis;$8,000) to Tyson. KT has no liabilities at the date of the distribution.;Tyson's basis in KT is $20,000. What is the amount and character of Tyson's;gain or loss from the distribution?;A. $0;B. $4,000;capital gain;C. $12,000;ordinary income;D. $12,000;capital gain;65. Tyson is a;25% partner in the KT Partnership. On January 1, KT distributes $16,000 cash;and land with a $16,000 fair value (inside basis $8,000) to Tyson. KT has no;liabilities at the date of the distribution. Tyson's basis in KT is $20,000.;What is Tyson's basis in the distributed land?;A. $0;B. $4,000;C. $8,000;D. $16,000;66. Tyson is a;25% partner in the KT Partnership. On January 1, KT distributes $16,000 cash;inventory with a $16,000 fair value (inside basis $8,000), and land with a fair;value of $8,000 (inside basis of $12,000) to Tyson. KT has no liabilities at;the date of the distribution. Tyson's basis in KT is $24,000. What is Tyson's;basis in the distributed inventory and land?;A. $8,000;inventory, $12,000 land;B. $16,000;inventory, $8,000 land;C. $0;inventory, $8,000 land;D. $8,000;inventory, $0 land;67. Tyson is a;25% partner in the KT Partnership. On January 1, KT distributes $16,000 cash;inventory with a $10,000 fair value (inside basis $4,000), land A with a fair;value of $8,000 (inside basis of $12,000) and land B with a fair value of;$6,000 (inside basis of $4,000) to Tyson. KT has no liabilities at the date of;the distribution. Tyson's basis in KT is $23,000. What is Tyson's basis in the;distributed inventory, land A and land B?;A. $10,000;inventory, $8,000 land A, $6,000 land B;B. $4,000;inventory, $12,000 land A, $4,000 land B;C. $0;inventory, $2,857 land A, $143 land B;D. $4,000;inventory, $2,000 land A, $1,000 land B;68. Brian is a;25% partner in the BC Partnership. On January 1, BC distributes $20,000 cash;and land with a $16,000 fair value (inside basis $8,000) to Brian. BC has no;liabilities at the date of the distribution. Brian's basis in BC is $16,000.;What is the amount and character of Brian's gain or loss on the distribution?;A. $0;B. $4,000;capital gain;C. $12,000;capital gain;D. $20,000;capital gain;69. Which of;the following statements regarding disproportionate distributions is false?;A. A;disproportionate distribution occurs when a partner receives more than his;proportionate share of the partnership's hot assets.;B. A;disproportionate distribution occurs when a partner receives less than his;proportionate share of the partnership's hot assets.;C. The tax;provisions related to disproportionate distributions attempt to preserve the;partners' share of ordinary income potential.;D. Disproportionate;distributions will only occur in liquidating distributions.;70. Which of;the following statements regarding hot assets for purposes of disproportionate;distributions is false?;A. Hot;assets include unrealized receivables.;B. Hot;assets include all inventory.;C. Hot;assets include substantially appreciated inventory.;D. The;definition of hot assets for distributions and sales of partnership interests;differs.;71. The PW;partnership's balance sheet includes the following assets immediately before it;liquidates;In complete liquidation PW distributes the cash to Pamela;and the unrealized receivables to Wade (equal partners). Pamela and Wade each;have an outside basis in PW equal to $5,000. PW has no liabilities at the time;of the liquidation. What is the amount and character of Pamela's recognized;gain or loss?;A. $0;B. $5,000;capital gain;C. $5,000;ordinary income;D. $2,500;capital gain and $2,500 ordinary income;72. The PW;partnership's balance sheet includes the following assets immediately before it;liquidates;In complete liquidation PW distributes the cash to Pamela;and the unrealized receivables to Wade (equal partners). Pamela and Wade each;have an outside basis in PW equal to $5,000. PW has no liabilities at the time;of the liquidation. What is the amount and character of Wade's recognized gain;or loss?;A. $0;B. $5,000;capital gain;C. $5,000;ordinary income;D. $2,500;capital gain and $2,500 ordinary income;73. Kathy is a;25% partner in the KDP Partnership and receives a parcel of land with a fair;value of $150,000 (inside basis of $100,000) in complete liquidation of her;partnership interest. Kathy's outside basis immediately before the distribution;is $200,000. KDP currently has a ?754 election in effect and has no hot assets;or liabilities. What is KDP's special basis adjustment from the distribution?;A. $0;B. $50,000;step up;C. $100,000;step up;D. $100,000;step down;74. Which of;the following is false concerning special basis adjustments?;A. Special;basis adjustments are intended to eliminate discrepancies between inside and;outside bases.;B. Special;basis adjustment is an annual election made by the partnership.;C. Special;basis adjustments can occur when a new investor purchases a partnership;interest.;D. Special;basis adjustments can occur when a partner recognizes a gain or loss from a;distribution.;75. Kathy;purchases a one-third interest in the KDP Partnership from Paul for $60,000.;Just prior to the sale, Paul's outside and inside bases in KDP are $48,000.;KDP's balance sheet includes the following;If KDP has a ?754 election in place, what is Kathy's special;basis adjustment?;A. $0;B. $36,000;C. $12,000;D. None of;these is correct.;76. Kathy is a;25% partner in the KDP Partnership and receives $120,000 cash in complete;liquidation of her partnership interest. Kathy's outside basis immediately;before the distribution is $160,000. KDP currently has a ? 754 election in;effect and has no hot assets or liabilities. Which of the following statements;is true?;A. KDP will;step up the basis of its assets by $40,000 and Kathy will recognize a $40,000;loss on the distribution.;B. KDP will;step up the basis of its assets by $40,000 and Kathy will recognize a $40,000;gain on the distribution.;C. KDP will;step down the basis of its assets by $40,000 and Kathy will recognize a $40,000;loss on the distribution.;D. KDP will;step down the basis of its assets by $40,000 and Kathy will recognize a $40,000;gain on the distribution.;Essay Questions;77. Joan is a;1/3 partner in the PDJ Partnership. On May 1, Joan sells her interest to;Freddie for a cash payment of $75,000. On January 1, Joan's basis in PDJ is;$57,000. PDJ generates $60,000 of ordinary income and $9,000 of tax-exempt;income during the first four months of the year. PDJ has the following assets;and no liabilities at the sale date;What is the amount and character of Joan's gain or loss on;the sale?;78. Joan is a;30% partner in the OJT Partnership when she sells her entire interest to Crissy;for $100,000 cash. At the time of the sale, Joan's basis in OJT is $63,000;(which includes her $10,000 share of OJT liabilities). OJT does not have any;hot assets. What is the amount and character of Joan's gain or loss on the;sale?;79. The VRX;Partnership (a calendar year-end entity) has the following assets and no;liabilities;The equipment was purchased for $360,000 and VRX has taken;$90,000 of depreciation. The stock was purchased 7 years ago. What are VRX's;hot assets for purposes of a sale of partnership interest?;80. Victor is;a 1/3 partner in the VRX partnership with an outside basis of $156,000 on;January 1. Victor sells his partnership interest to Raj on January 1st for;$200,000 cash. The VRX Partnership has the following assets and no liabilities;as of January 1;The equipment was purchased for $360,000 and the partnership;has taken $90,000 of depreciation. The stock was purchased 7 years ago. What is;the amount and character of Victor's gain or loss on the sale of his;partnership interest?;81. Zayde is a;1/3 partner in the ARZ partnership with an outside basis of $156,000 on January;1. Zayde sells his partnership interest to Thomas on January 1st for $180,000;cash. The ARZ Partnership has the following assets and no liabilities as of;January 1;The equipment was purchased for $360,000 and the partnership;has taken $90,000 of depreciation. The stock was purchased 3 years ago. What is;the amount and character of Zayde's gain or loss on the sale of his partnership;interest?;82. Marty is a;40% owner of MB Partnership. Marty has decided to sell his interest in the;business to Emilio for $100,000 cash plus the assumption of his share of MB's;liabilities. Assume Marty's inside and outside basis in MB are equal. MB shows;the following balance sheet as of the sale date;What is the amount and charac

 

Paper#38070 | Written in 18-Jul-2015

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