CHAPTER21SOLUTIONS - CHAPTER 21 SOLUTIONS END OF CHAPTER...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 21 SOLUTIONS END OF CHAPTER QUESTIONS COVERED IN LECTURE – NOT COLLECTED : 7, 8, 9, 10, 11, 14, 15, (15 Not Included Homework Problem), 16, 17, 25, 26, 27, AND 29. 7. In 2005, 2006, and 2007, BR can use either the cash, accrual, or a hybrid method of accounting. BR has at least one Subchapter C corporation as a partner, but BR’s average annual gross receipts did not exceed $5,000,000 in either 2005 or 2006. (BR’s average annual gross receipts were $4,600,000 for 2005 and $4,800,000 for 2006.) In 2008, BR must change to the accrual method of accounting. BR has at least one Subchapter C corporation as a partner during that year, and BR’s average annual gross receipts for the preceding years exceeded $5,000,000. (Average annual gross receipts for the period ending in 2007 were $5,200,000.) pp. 21-16 and 21-17 8. Under § 722, a partner’s initial basis is determined by reference to the amount of money and the basis of other property contributed to the partnership. This basis is increased by any gain recognized under § 721(b) and the partner’s share of any partnership liabilities. Basis is decreased by any partner liabilities assumed by the partnership. Basis is also adjusted to reflect the effect of partnership operations: it is increased by the partner’s share of taxable and nontaxable income and is decreased by the partner’s share of loss and nondeductible/noncapitalizable expenses. Certain adjustments for depletion are also made. Finally, a partner’s basis is increased by additional contributions to the partnership and by increases in the partner’s share of partnership debt. Basis is decreased by distributions from the partnership and decreases in the partner’s share of partnership debt. A partner’s basis is adjusted any time it may be necessary to determine the basis for the partnership interest, for example, when a distribution was made during the taxable year, or at the end of a year in which a loss arises. A partner’s basis may never be reduced below zero (i.e., no negative basis). Figure 21-3 9. The three rules of the economic effect test are designed to ensure that a partner bears the economic burden of a loss or deduction allocation and receives the economic benefit of an income or gain allocation. By increasing the partner’s capital account by the gain or income allocated to the partner, the rule ensures that a positive capital account partner will receive an allocation of assets equal to the balance in the partner’s capital account when the partner’s interest is eventually liquidated. If the partner has a negative capital account, an allocation of gain or income to the partner reduces the amount of the negative capital account and, therefore, the amount of the deficit capital contribution that is required from the partner upon liquidation. In short, a dollar of income or gain increases the partner’s capital account by a dollar and, everything being equal, the partner should receive a dollar more upon liquidation (or contribute a dollar less to restore a deficit in the capital account). Allocations of losses and deductions affect the partner in the opposite manner as income or
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/11/2008 for the course ACCT 4153 taught by Professor Campbell during the Fall '08 term at The University of Texas at San Antonio- San Antonio.

Page1 / 6

CHAPTER21SOLUTIONS - CHAPTER 21 SOLUTIONS END OF CHAPTER...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online