CPA-Partnership--06 - Becker Professional Review 2K5...

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Becker Professional Review 2K5 Exported Questions 1 2K5 Exported Questions–Regulation 4 Export Date: 7/11/2005
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2K5 Exported Questions Becker Professional Review 2 Partnership Taxation CPA-01695 Type1 M/C A-D Corr Ans: C PM R 4-01 1. CPA-01695 ARE R03 #6 Page 12 Thompson's basis in Starlight Partnership was $60,000 at the beginning of the year. Thompson materially participates in the partnership's business. Thompson received $20,000 in cash distributions during the year. Thompson's share of Starlight's current operations was a $65,000 ordinary loss and a $15,000 net long-term capital gain. What is the amount of Thompson's deductible loss for the period? a. $15,000 b. $40,000 c. $55,000 d. $65,000 CPA-01695 Explanation Choice "c" is correct. A partner's deductible loss is limited to his basis plus any amounts that he is personally liable for ("at risk" provision). Thompson's basis would be calculated as follows: Beginning basis $ 60,000 Plus: Net LT capital gain 15,000 Less: Cash distribution (20,000 ) Basis for determining allowable loss deduction $ 55,000 Thompson would be allowed to take a loss deduction for $55,000 of the $65,000 ordinary loss passed through to him from the partnership. The remaining $10,000 would be carried forward until additional basis became available. Choice "a" is incorrect. This choice assumes a partner can take a loss to the extent of capital gain income. Choice "b" is incorrect. This choice does not take into account the additional basis Thompson receives for the pass through income (net long-term capital gain). Choice "d" is incorrect. Thompson's loss is limited to his basis plus any liabilities that he is personally liable for. His basis is calculated as above for this determination and the question does not indicate he should receive any additional basis for any liabilities. CPA-01696 Type1 M/C A-D Corr Ans: C PM R 4-01 2. CPA-01696 ARE R03 #10 Page 18 Stone and Frazier decided to terminate the Woodwest Partnership as of December 31. On that date, Woodwest's balance sheet was as follows: Cash $2,000 Equipment (adjusted basis) 2,000 Capital - Stone $3,000 Capital - Frazier 1,000 The fair market value of the equipment was $3,000. Frazier's outside basis in the partnership was $1,200. Upon liquidation, Frazier received $1,500 in cash. What gain should Frazier recognize? a. $0 b. $250 c. $300 d. $500 CPA-01696 Explanation
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Becker Professional Review 2K5 Exported Questions 3 Choice "c" is correct. In a complete liquidation of a partnership, the partner's basis in property received is the same as the adjusted basis of his partnership interest reduced for any monies actually received and is generally a nontaxable event. However, if a partner receives only money that exceeds his basis in the partnership, gain or loss is recognized. In this instance, Frazier's basis in his partnership interest was $1,200. He received $1,500 in cash in the liquidation. Frazier's gain is calculated as follows:
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CPA-Partnership--06 - Becker Professional Review 2K5...

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