.
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.
$122,000.
CORRECT
$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:
2 of 2
2.
Question:
(TCO 7) In the current year, Daisy formed an equal partnership with Peter. Daisy contributed land with an
adjusted basis of $15,000 and a fair market value of $75,000. Daisy also contributed $25,000 cash to the
partnership. Peter contributed land with an adjusted basis of $50,000 and a fair market value of $90,000.
The land contributed by Daisy was encumbered by a $10,000 nonrecourse debt. Assume the partners
share debt equally. Immediately after the formation, the basis of Peter’s partnership interest is:
Your Answer:
Instructor Explanation:
Peter’s basis is determined as follows:
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Basis of land
.....
$ 50,000
Share of debt
........
5,000
Peter’s basis
.......
$55,000
Points Received:
2 of 2
3.
Question:
(TCO 7) A partnership will take a cost basis in an asset it acquires when:
Your Answer:
Instructor Explanation:
The purchase of an asset from either a partner or an outside party will result in the asset taking a cost
basis to the partnership. Under § 1031, a partnership takes a substituted basis for the asset received in
the exchange (choice a.). When a partner contributes an asset to a partnership in exchange for a

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- Spring '10
- Accounting, Instructor Explanation
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