Discussion Question $10-11($LO$.11)$

Answer the following questions regarding a partner's capital account.

a$.$What is a partner's capital account? What methods can be used to determine the capital account, and when might these methods be used?

A partner's capital account can be thought of as

a list of separately stated items in thean accounting of the a permanent record of the initial

partner's ownership in the entity. A partner's capital account reflects the partner's

financial interestoriginal basisretained earnings

in the partnership, and it is determined using one of several possible methods defined by the partnership. The partner's ending capital account balance is

alwaysneverrarely

the same amount as the partner's basis. A tax basis capital account might be used if the partnership

isis not

otherwise required to prepare financial reporting information.

b$.$Select either "Yes" or $"$No$"$ to indicate which of the following are included in a partner's ending capital account balance and which are not.

$1.$The capital account reflects contributions and distributions of cash or other property to or from the partner.

YesNo

$2.$The capital account accumulates the partner's share of increases and decreases from operations.

YesNo

$3.$The capital account may be adjusted for the partner's share of partnership liabilities.

YesNo

$4.$The capital account excludes income or expense items that are otherwise tax$-$exempt or nondeductible.

YesNo

c$.$Where can you find the partner$$s capital account information?

Ending capital on the K$1$

minusplus

the partner$$s share of partnership liabilities will often equal the partners$$ tax basis in the partnership interest. As a corollary, the partner$$s tax basis capital account

doesdoes not

include partnership liabilities, but the partner$$s tax basis in the partnership interest does.