C:9-32 Partnership Income and Basis Adjustments. Mark and Pamela are equal partn

Question

C:9-32 Partnership Income and Basis Adjustments. Mark and Pamela are equal partners in MP Partnership. The partnership, Mark, and Pamela are calendar year taxpayers. The partner- ship incurred the following items in the current year: Sales Cost of goods sold Dividends on corporate investments lax-exempt interest income Sec. 1245 gain (recapture) on equipment sale Sec. 1231 gain on equipment sale Long-term capital gain on stock sale Long-term capital loss on stock sale Short-term capital loss on stock sale Depreciation (no Sec. 179 or bonus depreciation components) Guaranteed payment to Pamela Meals and entertainment expenses Interest expense on loans allocable to: $450,000 210,000 15,000 4,000 33,000 18,000 12,000 10,000 9,000 27,000 30,000 11,600 Business debt Stock investments Tax-exempt bonds 42,000 9,200 2,800 14,000 5,000 80,000 Principal payment on business loan Charitable contributions Distributions to partners ($40,000 each) a. Compute the partnership's ordinary income and separately stated items. b. Show Mark's and Pamela's shares of the items in Part a, c. Compute Mark's and Pamela's ending basis in their partnership interests assuming their beginning balances are $150,000 each.

Explanation / Answer

Mark Pam Sales 450000 Cost of Goods Sold -210000 Gross profit 240000 Sec 1245 gain 33000 Less : Depreciation -27000 Guaranted payment -30000 Business Interest -42000 Melas and entertainment -11600 -110600 Partnership ordinary income 162400 81200 81200 Separately stated items Dividend Income 15000 7500 7500 Interest Income 4000 2000 2000 Sec 1231 gain 18000 9000 9000 Net long term capital (12000-10000) 2000 1000 1000 Short term capital loss 9000 4500 4500 Investment Interest expense 9200 4600 4600 Charitable contributions 5000 2500 2500 Non deductional expenses 11600 5800 5800 Non deductible interest on loss 2800 1400 1400 Beginning basis in partnership Interest 150000 150000 Plus : Partnership ordinary income 81200 81200 Dividend Income 7500 7500 Interest Income 2000 2000 Sec 1231 gain 9000 9000 Net long term capital 1000 1000 Less : Distributions -40000 -40000 Reduction in partnership liabilities -7000 -7000 Short term capital loss -4500 -4500 Stock investment -4600 -4600 Charitable contributions -2500 -2500 Tax exempt bonds -1400 -1400 Non-deductible meals and entertainment -5800 -5800 Ending basis for each partner 184900 184900

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