Assessment 7 Problems

In a Word document, provide complete answers with explanations to the problems below.

Problem 1

Darrel, Sissy, and Carol form a partnership.  Darrel and Sissy give equipment and a building, respectively.  Carol agrees to perform all of the accounting and office work in exchange for a 10% interest.

                                    FMV               Basis                Partnership %

Darrel’s equipment      $200,000         $100,000                     60%

Sissy’s building           $100,000         $50,000                       30%

Carol’s services                    $0           $0                                10%

                        a.  Do any of the partners recognize any gain?  If so, how much and why?

                        b.  What is the basis for each partner in his or her partnership interest?

                        c.  What is the basis for the partnership of each asset?

Problem 2

Wayne has a beginning basis in a partnership of $46,000.  His share of income and expense from the partnership consists of the following amounts:

                        Ordinary income                                 $86,000

                        Guaranteed payment                             24,000

                        Long-term capital gain                          31,000

                        §1231 gain                                              8,600

                        Charitable contributions                          4,000

                        §179 expense                                        36,000

                        Cash distribution                                   12,000

            a.  What is Wayne’s self-employment income?

            b.  Calculate Wayne’s basis at the end of the year.

Problem 3

Karen has a basis in her partnership interest of $24,000 when she receives a distribution from the partnership of $12,000 cash, and equipment with a basis of $16,000 ($24,000 FMV). 

            a.  How much gain or loss must Karen recognize on the distribution?

            b.  What is Karen’s ending partnership basis?

            c.  What is Karen’s basis in the equipment?

Problem 4

Carrie purchased a 40% partnership interest for $86,000 in February 2016.  Her share of partnership income in 2016 was $44,000, in 2017 was $50,000, and in 2018 was $24,000.  She made no additional contributions to, or withdrawals from, the partnership.  On December 18, 2018, Carrie sold her partnership interest for $206,000.  What is her gain or loss on the sale of her partnership interest? 

Problem 5

Determine the basis of stock in the hands of the shareholder in each of the following instances.  Assume that the 80% rule is met in all cases.

a.  Contribution of property with a basis of $2,000 and an FMV of $2,800.

b.  Contribution of property with a basis of $6,000 and an FMV of $7,600.  The stockholder also received $1,000 cash from the corporation as part of the stock transaction.

c.  Contribution of property with a basis of $16,400 and an FMV of $25,000.  The stockholder also received property with an FMV of $3,400 from the corporation as part of the stock transaction.

d.  Contribution of a building with an FMV of $400,000, a mortgage (assumed by the corporation) of $200,000, and a basis of $250,000.

e.  Contribution of a building with an FMV of $3,400,000, a mortgage (assumed by the corporation) of $2,000,000, and a basis of $1,270,000.

Problem 6

Determine taxable income in each of the following instances.  Assume that the corporation is a C corporation and that book income is before any income tax expense.

a.  Book income of $100,000 including capital gains of $4,000, a charitable contribution of $2,000, and travel and entertainment expenses of $6,000.

b.  Book income of $184,000 including capital losses of $6,000, a charitable contribution of $24,000, and travel and entertainment expenses of $6,000.

c.  Book income of $152,000 including municipal bond interest of $4,000, a charitable contribution of $10,000, and dividends of $6,000 from a 10% owned domestic corporation.  The corporation also has a $16,000 charitable contribution carryover.

d.  Book income of $258,000 including municipal bond interest of $4,000, a charitable contribution of $10,000, and dividends of $14,000 from a 70% owned domestic corporation.  The corporation has a capital loss carryover of $12,000 and a capital gain of $5,000 in the current year.

Problem 7

Determine the amount of (1) taxable dividend, (2) nontaxable distribution, and (3) capital gain, for the distributions made in each of the following cases:

a.  Corporate E&P of $20,000, shareholder stock basis of $24,000, distribution of $12,000.

b.  Corporate E&P of $15,000, shareholder stock basis of $14,000, distribution of $13,000.

c.  Corporate E&P of $32,000, shareholder stock basis of $10,000, distribution of $34,000.

d.  Corporate E&P of $28,000, shareholder stock basis of $22,000, distribution of $52,000.