Whittenburg Gerald E., Altus-Buller Martha. Income Tax Fundamentals
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LO 10.2 9. Larry and Jessica form the L&J Partnership. Larry contributes property with an
adjusted basis of $70,000, a fair market value of $200,000, and subject to a liability
of $80,000 in exchange for a 40 percent interest in the partnership. Jessica receives a
60 percent interest in the partnership in exchange for services performe d for the part-
nership, valued at $10,000, and cash of $170,000.
a. What amount of gain or loss must Larry recognize as a result of his transfer of the
property to the partnership?
$ ____________
b. What is Larry’s basis in his partnership interest immed iately after the formation of
the partnership?
$ ____________
c. What is the partnership’s basis in the property contributed by Larry?
$ ____________
d. What is Jessica’s basis in her partnership interest immediately after the formation of
the partnership?
$ ____________
LO 10.2 10. Jay contributes property with a fair market value of $14,000 and an adjusted basis of
$4,000 to a partnership in exchange for an 8 percen t partnership interest.
a. Calculate the amount of gain recognized by Jay as a result of the transfer of the
property to the partnership.
$ ____________
b. Calculate Jay’s basis in his partnership interest immediately following the contribu-
tion to the partnership.
$ ____________
LO 10.3 11. Walter receives cash of $18,000 and land with a fair market value of $75,000
(adjusted basis of $50,000) in a current distribution. His basis in his partnership is
$16,000.
a. What amount of gain must Walter recognize as a result of the current distribution?
$ ____________
b. What amount of gain must the partnership recognize as a result of the distribution?
$ ____________
c. What is Walter’s basis in his partnership interest immediately after the distribution?
$ ____________
12. Go to the IRS Web site (www.irs.gov) and determine which IRS publication addresses
the topic of partnership taxation. Print out the page with the Table of Contents of this
IRS publication.
13. Go to th e IRS Web site (www.irs.gov) and print out a copy of the most recent
Schedule D of Form 1065.
GROUP 3:
COMPREHENSIVE PROBLEM
.............................................. .............................................. .
1. Emily Jackson (Social Security number 765-12-4326) and James Stewart (Social Secu-
rity number 466-74-9932) are partners in a partnership that owns and operates a bar-
ber shop. The partnership’s first year of operation is 2010. Emily and James divide
income and expenses equally. The partnership name is J&S Barbers, it is located at
Questions and Problems 10-25
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
1023 Broadway, New York, NY 10004, and its Federal ID number is 95-676767. The
2010 financial statements for the partnership are presented below.
J&S Barb ers Income Statement
for the Year Ended December 31, 2010
Gross income from operations $371,600
Deductions:
Salaries to employees 94,000
Payroll taxes 10,000
Supplies 9,000
Rent 45,000
Depreciation 5,100
Long-term capital loss 2,000
Charitable contributions
500
Net income
$206,000
Partners’ withdrawals (each partner)
$ 80,000
J&S Barbers Balance Sheet
as of December 31, 2010
Assets:
Cash $100,850
Accounts receivable 10,000
Equipment $32,000
Accum. depreciation
(5,100) 26,900
$137,750
Liabilities and Capital:
Accounts payable $ 29,750
Notes payable 22,000
Partners’ capital ($20,000
contributed by each partner)
86,000
$137,750
Emily lives at 456 E. 70th Street, New York, NY 10006, and James lives at 436 E.
63rd Street, New York, NY 10012.
Required: Complete Emily’s and James’ Form 1065, Schedules K-1, and any other appro-
priate schedule(s) you need from pages 10-27 to 10-36 to complete J&S Barbers’ tax return.
Do not fill in Schedule D, for the capital gain, or Form 4562, for depreciation. Make real-
istic assumptions about any missing data.
10-26 Chapter 10
Partnership Taxation
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Questions and Problems 10-27
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10-28 Chapter 10
Partnership Taxation
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Questions and Problems 10-29
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10-30 Chapter 10
Partnership Taxation
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Questions and Problems 10-31
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10-32 Chapter 10
Partnership Taxation
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Questions and Problems 10-33
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10-34 Chapter 10
Partnership Taxation
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.