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Brooke and John formed a partnership.Brooke received a 40% interest in partnership capital and profits in exchange for contributing land basis of $30,000 and fair market value of $120,000) .John received a 60% interest in partnership capital and profits in exchange for contributing $180,000 of cash.Three years after the contribution date, the land contributed by Brooke is sold by the partnership to a third party for $150,000.How much taxable gain will Brooke recognize from the sale?


A) $102,000
B) $90,000
C) $48,000
D) $36,000
E) $0

F) All of the above
G) A) and E)

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A partner will have the same profit-sharing, loss-sharing, and capital-sharing ownership percentages.

A) True
B) False

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The amount of a partnership's income and loss from operating activities is combined with separately stated income and expenses to determine the partnership's equivalent of "taxable income." This amount is reconciled to book income on the partnership's Schedule M-1 or Schedule M-3.

A) True
B) False

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Match each of the following statements with the terms below that provide the best definition. -Schedule K-1


A) Adjusted basis of each partnership asset.
B) Operating expenses incurred after entity is formed but before it begins doing business.
C) Each partner's basis in the partnership.
D) Reconciles book income to "taxable income."
E) Tax accounting election made by partnership.
F) Tax accounting calculation made by partner.
G) Tax accounting election made by partner.
H) Does not include liabilities.
I) Designed to prevent excessive deferral of taxation of partnership income.
J) Amount that may be received by partner for performance of services for the partnership.
K) Theory under which a partnership's recourse debt is shared among the partners.
L) Will eventually be allocated to partner making tax-free property contribution to partnership.
M) Partner's share of partnership items.
N) Must generally be satisfied by any allocation to the partners.
O) Justification for a tax year other than the required taxable year.
P) No correct match is provided.

Q) E) and I)
R) H) and L)

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Mark and Addison formed a partnership.Mark received a 25% interest in partnership capital and profits in exchange for land with a basis of $40,000 and a fair market value of $60,000.Addison received a 75% interest in partnership capital and profits in exchange for $180,000 of cash.Three years after the contribution date, the land contributed by Mark is sold by the partnership to a third party for $76,000.How much taxable gain will Mark recognize from the sale?


A) $0
B) $9,000
C) $16,000
D) $24,000
E) $36,000

F) C) and E)
G) D) and E)

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George is a limited partner in the GLH Partnership.His basis is $40,000 before considering the current year operations, and includes a $20,000 recourse debt share and a $10,000 nonrecourse debt share.The nonrecourse debt is not treated as qualified nonrecourse financing.GLH reported a $200,000 loss for the year, of which George's 40% share is $80,000.George has passive income of $50,000 from another activity not eligible for the special real estate deduction) .He has no business losses for the year from other sources.How much of the $80,000 GLH loss can George deduct this year?


A) $10,000.
B) $30,000.
C) $40,000.
D) $50,000.
E) $80,000.

F) None of the above
G) A) and D)

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Match each of the following statements with the terms below that provide the best definition. -Limited liability partnership


A) Organizational choice of many large accounting firms.
B) Partner's percentage allocation of current operating income.
C) Might affect any two partners' tax liabilities in different ways.
D) Partnership in which partners are only liable for torts and malpractice.
E) Expense might be reported on either form 1065, page 1 or on Schedule K.
F) Transfer of asset to partnership followed by immediate distribution of cash to partner.
G) Must have at least one general and one limited partner.
H) Long-term capital gain might be recharacterized as ordinary income.
I) All partners are jointly and severally liable for entity debts.
J) Theory treating the partner and partnership as separate economic units.
K) Partner's basis in partnership interest after tax-free contribution of asset to partnership.
L) Partnership's basis in asset after tax-free contribution of asset to partnership.
M) One way to calculate a partner's economic interest in the partnership.
N) Owners are "members."
O) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
P) Participates in management.
Q) Not liable for entity debts.
R) No correct match provided.

S) B) and I)
T) K) and R)

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Match each of the following statements with the terms below that provide the best definition. -Required taxable year


A) Adjusted basis of each partnership asset.
B) Operating expenses incurred after entity is formed but before it begins doing business.
C) Each partner's basis in the partnership.
D) Reconciles book income to "taxable income."
E) Tax accounting election made by partnership.
F) Tax accounting calculation made by partner.
G) Tax accounting election made by partner.
H) Does not include liabilities.
I) Designed to prevent excessive deferral of taxation of partnership income.
J) Amount that may be received by partner for performance of services for the partnership.
K) Theory under which a partnership's recourse debt is shared among the partners.
L) Will eventually be allocated to partner making tax-free property contribution to partnership.
M) Partner's share of partnership items.
N) Must generally be satisfied by any allocation to the partners.
O) Justification for a tax year other than the required taxable year.
P) No correct match is provided.

Q) B) and L)
R) B) and N)

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Julie and Kate form an equal partnership during the current year.Julie contributes cash of $200,000, and Kate contributes property adjusted basis of $90,000, fair market value of $260,000) subject to a nonrecourse liability of $60,000.As a result of these transactions, Kate has a basis in her partnership interest of $120,000.

A) True
B) False

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One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner, even if it is not distributed.

A) True
B) False

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When it liquidates, a partnership is not generally subject to tax on the appreciation of its assets.

A) True
B) False

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Match each of the following statements with the terms below that provide the best definition. -Foreign tax credit vs.deduction


A) Adjusted basis of each partnership asset.
B) Operating expenses incurred after entity is formed but before it begins doing business.
C) Each partner's basis in the partnership.
D) Reconciles book income to "taxable income."
E) Tax accounting election made by partnership.
F) Tax accounting calculation made by partner.
G) Tax accounting election made by partner.
H) Does not include liabilities.
I) Designed to prevent excessive deferral of taxation of partnership income.
J) Amount that may be received by partner for performance of services for the partnership.
K) Theory under which a partnership's recourse debt is shared among the partners.
L) Will eventually be allocated to partner making tax-free property contribution to partnership.
M) Partner's share of partnership items.
N) Must generally be satisfied by any allocation to the partners.
O) Justification for a tax year other than the required taxable year.
P) No correct match is provided.

Q) A) and F)
R) B) and J)

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Items that are not required to be shown on the partners' Schedules K-1 include AMT adjustments and preferences and taxes paid to foreign countries, as AMT and the foreign tax credit are calculated by the partnership.

A) True
B) False

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Tara and Robert formed the TR Partnership four years ago.Because they decided the company needed some expertise in multimedia presentations, they offered Katie a 1/3 interest in partnership capital if she would come to work for the partnership.On July 1 of the current year, the unrestricted partnership interest fair market value of $25,000) was transferred to Katie.How should Katie treat the receipt of the partnership interest in the current year?


A) Nontaxable.
B) Carried interest.
C) $25,000 ordinary income.
D) $25,000 long-term capital gain.
E) $25,000 short-term capital gain.

F) B) and D)
G) B) and C)

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AmCo and BamCo form the AB General Partnership at the start of the current year with a land contribution by BamCo and a cash contribution by AmCo.BamCo's contributed property is subject to a recourse mortgage assumed by the partnership.BamCo has an 80% interest in AB's profits and losses.The land has been held by BamCo for the past 6 years as an investment.It will be used by AB as an operating asset in its parking lot business.Which of the following statements is correct? B


A) Immediately after formation, AmCo's basis in the partnership equals the cash contributed by AmCo .
B) Immediately after formation, AmCo 's basis in the partnership equals the cash AmCo contributed plus AmCo's share of the recourse debt contributed by BamCo.
C) Because the debt is recourse, it can only be allocated to the general partners if one of them personally guarantees the debt.
D) AB's basis in the land contributed by BamCo equals BamCo's basis in the land immediately before the contribution date, less the amount of the recourse debt assumed by the partnership.
E) None of the above.

F) A) and B)
G) A) and C)

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DIP LLC reports ordinary income before guaranteed payments) of $120,000, rent expense of $40,000, and interest income of $4,000 for the year.In addition, DIP paid guaranteed payments to partner Percy of $20,000.If Percy owns a 40% capital and profits interest, how much income will he report for the year and what is its character?


A) $24,000 ordinary income.
B) $24,000 ordinary income, $1,600 interest income, $20,000 guaranteed payment.
C) $25,600 ordinary income.
D) $32,000 ordinary income, $1,600 interest income.
E) $32,000 ordinary income, $1,600 interest income, $20,000 guaranteed payment.

F) A) and B)
G) D) and E)

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The taxable income of a partnership flows through to the partners, who report the income on their tax returns.

A) True
B) False

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Match each of the following statements with the terms below that provide the best definition. -General Partner


A) Organizational choice of many large accounting firms.
B) Partner's percentage allocation of current operating income.
C) Might affect any two partners' tax liabilities in different ways.
D) Partnership in which partners are only liable for torts and malpractice.
E) Expense might be reported on either form 1065, page 1 or on Schedule K.
F) Transfer of asset to partnership followed by immediate distribution of cash to partner.
G) Must have at least one general and one limited partner.
H) Long-term capital gain might be recharacterized as ordinary income.
I) All partners are jointly and severally liable for entity debts.
J) Theory treating the partner and partnership as separate economic units.
K) Partner's basis in partnership interest after tax-free contribution of asset to partnership.
L) Partnership's basis in asset after tax-free contribution of asset to partnership.
M) One way to calculate a partner's economic interest in the partnership.
N) Owners are "members."
O) Theory treating the partnership as a collection of taxpayers joined in an agency relationship.
P) Participates in management.
Q) Not liable for entity debts.
R) No correct match provided.

S) F) and J)
T) C) and P)

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William is a general partner in the WST partnership.During the current year, he receives a guaranteed payment of $10,000 for services he provides to the partnership, and his distributive share of partnership income is $30,000.William is required to pay self-employment tax on the $10,000 guaranteed payment, but not on his distributive share of partnership income.

A) True
B) False

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When Kevin and Marshall formed the equal KM LLC, the fair market values of their interests were each $100,000.Kevin contributed $60,000 cash, equipment with a basis of $0 and a fair market value of $10,000, and a small parcel of land in which he had a basis of $50,000 and which was valued at $30,000.Marshall contributed an account receivable that was valued at $100,000 and which his basis was $0.Kevin has a basis in his partnership interest of $110,000 and Marshall's basis is $0.

A) True
B) False

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