James Madison Partnership and Corporate Tax Reporting Issues Problems

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nrufna

Business Finance

James Madison University

Description

Complete the following. In these problems, apply

your knowledge of the rules and laws associated with tax reporting for

the partnership form of business ownership.

  • Problem 49, on page 14-39.
  • Problem 51, on page 14-39.
  • Problem 55, on page 14-40.
  • Problem 56, on page 14-41.
  • Problem 61, on page 14-42.
  • Problem 47, on page 15-36.
  • Problem 50, on page 15-37.
  • Problem 52, on page 15-37.
  • Problem 53, on page 15-38.
  • Problem 56, on page 15-39.

Problems Attached

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Problem 49: On June 1 of the current year, Patti contributes equipment with a $45,000 basis and a $35,000 FMV in exchange for a partnership interest. She purchased the equipment three years ago. a. b. c. d. e. What is Patti’s basis in her partnership interest? What is Patti’s holding period of her partnership interest? What is the basis of the equipment in the hands of the partnership? What is the holding period of the equipment in the hands of the partnership? How will the partnership depreciate the equipment in the year of contribution? Problem 51: Moe, Johnny, and Raymond form a partnership and contribute the following assets: Moe’s inventory Johnny’s building Raymond’s cash FMV $ 50,000 110,000 50,000 Basis $10,000 80,000 50,000 Partnership Percentage 33.3% 33.3 33.3 Johnny’s building has a mortgage of $60,000, which the partnership assumes. a. b. c. d. Do any of the partners recognize any gain? If so, how much and why? What is the basis for each partner in his partnership interest? What is the basis to the partnership in each asset? How would your answer change with respect to Johnny if the basis in the building were $45,000? Problem 55: Bryan and Gayle are equal partners in BG Partnership. The partnership reports the following items of income and expense: Ordinary income from operations Interest income Long-term capital gains § 179 expense Charitable contributions $13,000 5,000 23,000 55,000 3,000 a. Which of these items are considered separately stated items? On what form will these items be reported to the partners? b. Where will these amounts be reported by the partners? Problem 56: Kim has a basis in her partnership interest of $12,000 when she receives a distribution from the partnership of $6,000 cash and equipment with a basis of $8,000 ($12,000 FMV). a. How much gain or loss must Kim recognize on the distribution? b. What is Kim’s ending partnership basis? c. What is Kim’s basis in the equipment? Problem 61: Calvin purchased a 40% partnership interest for $43,000 in February 2016. His share of partnership income in 2016 was $22,000, in 2017 was $25,000, and in 2018 was $12,000. He made no additional contributions to or withdrawals from the partnership. On December 18, 2018, Calvin sold his partnership interest for $103,000. What is his gain or loss on the sale of his partnership interest? Problem 47: 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 $1,000 and an FMV of $1,400. b. Contribution of property with a basis of $3,000 and an FMV of $3,800. The stockholder also received $500 cash from the corporation as part of the stock transaction. c. Contribution of property with a basis of $8,200 and an FMV of $12,500. The stockholder also received property with an FMV of $1,700 from the corporation as part of the stock transaction. d. Contribution of a building with an FMV of $200,000, a mortgage (assumed by the corporation) of $100,000, and a basis of $125,000. e. Contribution of a building with an FMV of $1,700,000, a mortgage (assumed by the corporation) of $1,000,000, and a basis of $635,000. Problem 50: Determine the amount of the dividends received deduction in each of the following instances. In all cases, the net income figure includes the full dividend. a. b. c. d. Dividend of $10,000 from a 45% owned corporation; taxable income before DRD of $50,000. Dividend of $19,000 from a 15% owned corporation; taxable income before DRD of $75,000. Dividend of $22,000 from a 60% owned corporation; taxable income before DRD of $11,000. Dividend of $8,000 from a 10% owned corporation; taxable income before DRD of $7,000. Problem 52: Determine the deductible charitable contribution in each of the following instances: a. Charitable contribution of $4,000 and taxable income before charitable contribution of $50,000. b. Charitable contribution of $8,000 and taxable income before charitable contribution of $50,000. c. Charitable contribution of $4,800 and taxable income before charitable contribution of $50,000. Taxable income includes a net operating loss carryforward of $5,000. d. Charitable contribution of $4,800 and taxable income before charitable contribution of $40,000. Taxable income includes a capital loss carryback of $5,000. Problem 53: Determine taxable income in each of the following independent cases. In all cases, the company was very profitable in all years prior to 2017 and it had retained earnings of $1,000,000 at the end of 2017. a. In 2018, Company A has taxable income of $60,000 prior to consideration of any net operating loss. In 2017, the Company incurred a net operating loss of $10,000. They did not elect to waive the carryback period. Determine 2018 taxable income. b. In 2018, Company B has taxable income of $50,000 prior to consideration of any net operating loss. In 2017, the Company incurred a net operating loss of $20,000. They elected to waive the carryback period. Determine 2018 taxable income. c. In 2019, Company C has taxable income of $35,000 prior to consideration of any net operating loss. In 2018, the Company incurred a net operating loss of $30,000. Determine 2019 taxable income. d. In 2019, Company D has taxable income of $35,000 prior to consideration of any net operating loss. In 2017, the Company incurred a net operating loss of $5,000. They elected to waive the carryback period. In 2018, the Company incurred a net operating loss of $40,000. Determine 2019 taxable income. Problem 56: Determine the amount of taxable dividend, nontaxable distribution, and capital gain for the distributions made in each of the following cases: a. b. c. d. Corporate E&P of $10,000, shareholder stock basis of $12,000, distribution of $6,000. Corporate E&P of $7,500, shareholder stock basis of $7,000, distribution of $6,500. Corporate E&P of $16,000, shareholder stock basis of $5,000, distribution of $17,000. Corporate E&P of $14,000, shareholder stock basis of $11,000, distribution of $26,000.
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Running Head: SOLVING PROBLEMS

Solving Problems

Student’s Name:

Course Title:

Date:

SOLVING PROBLEMS

1

Problem 49:
On June 1 of the current year, Patti contributes equipment with a $45,000 basis and a $35,000
FMV in exchange for a partnership interest. She purchased the equipment three years ago.
a. What is Patti’s basis in her partnership interest?
$45, 000
b. What is Patti’s holding period of her partnership interest?
Any capital asset held in a period of more than one year is considered a long-term capital
asset.
c. What is the basis of the equipment in the hands of the partnership?
It is considered to be the same as the basis in the hands of the partner.
d. What is the holding period of the equipment in the hands of the partnership?
It will be three years too.
e. How will the partnership depreciate the equipment in the year of contribution?
After the reception of the contributions, the depreciation schedule commences and it is
three years.
Problem 51:
Moe, Johnny, and Raymond form a partnership and contribute the following assets:
FMV

Basis

Partnership
Percentage

Moe’s inventory

$ 50,000

$10,000

33.3%

Johnny’s building

110,000

80,000

33.3

SOLVING PROBLEMS
Raymond’s cash

2

50,000

50,000

33.3

Johnny’s building has a mortgage of $60,000, which the partnership assumes.
a. Do any of the partners recognize any gain? If so, how much and why?
There is no partner who recognizes any gain.
b. What is the basis for each partner in his partnership interest?

Moe

Johnny

Raymond

10,000

80,000

50,000

Liabilities released

60,000

Share of liabilities

20,000

20,000

20,000

Ending Basis

$30, 000

$40, 000

$70,000

c. What is the basis to the partnership in each asset?
Cash

$50,000

Inventory

$10,000

Building

$80,000

Total

$130, 000

d. How would your answer change with respect to Johnny if the basis in the building were
$45,000?

SOLVING PROBLEMS

3

Beginning Basis

$45, 000

Release of Liability

$60, 000

Share of Liability

$20, 000

Ending Basis

$ 5,000

No gain or loss still. Jonny will recognize a gain if the starting basis went below zero.
Problem 55:
Bryan and Gayle are equal partners in BG Partnership. The partnership reports the following
items of income and expense:
Ordinary incom...


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