Acct424_Quiz5 - 1. Question:

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1. Question: (TCO 7) Harrison contributed $100,000 of cash in exchange for a 50% interest in the Miller partnership  capital and profits.  During the first year of partnership operations, Miller had net taxable income of  $50,000.  In addition Harrison received a $10,000 distribution of cash from the partnership and he has a  50% share in the $14,000 of partnership recourse liabilities on the last day of the partnership year.   Harrison’s adjusted basis (outside basis) for his partnership interest at year-end is: Your Answer: $100,000. $114,000. INCORRECT $122,000. CORRECT ANSWER   $129,000. None of the above. Instructor Explanation: Because Harrison is a 50% partner, his basis will increase by 50% of the partnership’s taxable  income  and recourse liabilities.  The distribution reduces his basis.  Therefore, his basis is $100,000 contribution   + $25,000 share of income + $7,000 share of liabilities - $10,000 distribution.   Points Received: 0 of 2 2. Question: (TCO 7) In the current year, Smith formed an equal partnership with Wesson.  Smith contributed land with  an adjusted basis of $15,000 and a fair market value of $75,000.  Smith also contributed $25,000 cash to  the partnership.  Wesson contributed land with an adjusted basis of $50,000 and a fair market value of  $90,000.  The land contributed by Smith was encumbered by a $10,000 nonrecourse debt.  Assume the  partners share debt equally.  Immediately after the formation, the basis of Wesson’s partnership interest  is: Your Answer:
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Instructor Explanation: The partner’s basis in his or her partnership interest is increased by items of income, an increase in a  partners share of debt, and the excess of depletion deductions over the adjusted basis of property subject  to depletion.   It is decreased by losses, a decrease in a partners share of debt, the special loss deduction  for oil and gas wells, and nondeductible items not chargeable to a capital account.   Points Received: 2 of 2 3. Question: (TCO 7) On January 1 of the current year, Rachel and Julio form an equal partnership.  Rachel makes a  cash contribution of $80,000 and a property contribution (adjusted basis of $110,000; fair market value of  $80,000) in exchange for her interest in the partnership.  Julio contributes property (adjusted basis of 
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This note was uploaded on 04/22/2010 for the course ACCT ACCT424 taught by Professor Tracie during the Spring '10 term at DeVry Chicago O'Hare.

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Acct424_Quiz5 - 1. Question:

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