Multiple Choice Questions
1. A partner’s share of ordinary income or loss and separately stated items is reported to the partner via what form?
a. Form 1065.
b. Form 1040 - Schedule SE.
c. Form 1065, Schedule K-1.
d. Form 1065, Schedule D.
2. Retish is a 10% partner in a partnership. The partnership pays Retish a guaranteed payment of $45,000 per year. If the partnership’s ordinary income is $38,000 before considering the guaranteed payment, the partnership will report ordinary income of how much?
a. $ ($7,000).
b. $ 0.
c. $ 33,500.
d. $ 38,000.
3. The calculation of a partner’s basis in his or her partnership interest is mandatory in which of the following situations?
a. In a partnership loss year.
b. At the liquidation or disposition of a partner’s interest.
c. When the partner receives nonliquidating distributions.
d. All of the above.
4. Maggie and Davis are equal partners in a partnership. When forming the partnership, Davis contributed a building with a FMV of $550,000 and a basis of $175,000. During the first year of operations, the partnership earned $170,000 in ordinary income and tax-exempt interest of $2,500. Assuming no special allocations, Davis’s basis in the partnership interest at the end of the year is:
a. $175,000.
b. $261,250.
c. $345,600.
d. $347,500.
5. All of the following items usually affect the basis of a partnership interest except:
a. Cash or property contributed.
b. Guaranteed payments.
c. Partnership income or loss items.
d. A partner’s share of recourse liabilities.
6. Partner Beth has a basis of $10,000 in a partnership at the beginning of the year. She receives $6,000 in cash distributions, her distributive share of income is $5,000, and she receives a land distribution with a basis of $8,000 (FMV $20,000). What is Beth’s partnership interest basis at the end of the year?
a. $ 0.
b. $ 1,000.
c. $ 9,000.
d. $10,000.
7. Molly, a 30% partner in XYZ partnership, has a basis of $55,000 in her partnership interest. She receives a cash distribution of $54,000 at year-end. The distribution has what tax effect on Molly?
a. No gain or loss is recognized, and she has a $55,000 basis in her partnership interest.
b. No gain or loss is recognized, and she has a $1,000 basis in her partnership interest.
c. She has a recognized gain of $37,500 and a basis of $0 in her partnership interest.
d. She has a recognized gain of $55,000 and a basis of $0 in her partnership interest.
8. A partner recognizes a gain on a current distribution in which of the following situations?
a. When a partner receives a property distribution with a basis in excess of his or her basis.
b. When money or marketable securities are distributed in excess of the partner’s basis.
c. When the current distribution triggers a precontribution gain.
d. Both b and c.
9. Katlin contributes land to a partnership with a basis of $44,000 and a FMV of $56,000 in 2012. In 2014, when the FMV of the land is $58,000, the partnership distributes the land to Baily, another partner. Which of the following is true?
a. Katlin recognizes no gain or loss.
b. Baily recognizes a gain of $14,000.
c. Katlin recognizes a gain of $12,000.
d. Baily has a basis of $58,000 in the land.
10. All of the following statements are correct concerning liquidating distributions of a partnership except:
a. A loss can never be recognized.
b. A distribution of money in excess of basis causes a gain to be recognized..
c. Basis in a property distribution is allocated essentially the same as a nonliquidating distribution.
d. Generally, no gain or loss is recognized when the liquidating distribution consists only of property.
11. On November 1, Ashton sells her interest in XYZ partnership to Wayne for $200,000 cash and a release of liability of $30,000. Ashton’s basis at the beginning of the year was $125,000 (including the $30,000 of liability). Ashton’s share of income through November 1 was $45,000, and she received a $15,000 cash distribution earlier in the year. What are the tax consequences to Ashton on the sale of her partnership interest?
a. $ 0 tax effect.
b. $ 45,000 capital gain.
c. $ 75,000 capital gain.
d. $105,000 capital gain.