Schedules K and K-1 Reporting for Problem 13 (LO. 4, 5) Amy and Mitchell are equ

Question

Schedules K and K-1 Reporting for Problem 13 (LO. 4, 5)

Amy and Mitchell are equal partners in the accrual basis AM Partnership. At the beginning of the current tax year, Amy's capital account has a balance of $300,000, and the partnership has recourse debts of $200,000 payable to unrelated parties. All partnership recourse debt is shared equally between the partners.

The following information about AM's operations for the current year is obtained from the partnership's records:

Note: Assume that year-end partnership debt payable to unrelated parties is $140,000.

If all transactions are reflected in her beginning capital and basis in the same manner, what is Amy report on her income tax return:

Amy's distributive share of the partnership's: investment, income ordinary income or interest income is subject to self-employment tax.

The cash distribution Amy received: would be or would not better taxable and the decrease in Amy's share of partnership liabilities would be or would not be taxable.

Ordinary income $400,000 Interest income from P&G bond 4,000 Long-term capital loss 6,000 Short-term capital gain 12,000 Charitable contribution 4,000 Cash distribution to Amy 20,000

Explanation / Answer

Amy's share of ordinary income : $200000

Amy's share of long term capital loss : $ 0 (all capital loss gets oset against capital gain)

Amy's share of short term capital gain : $ 3000

Amy's share of interest income : $ 2000

Amy's share of charitable contribution deduction : $ 2000

Amy's investment income : $ 2000

Amy's ordinary income : $ 200000

Amy's interest income : $ 2000

Cash distriution to Amy is not taxable to Amy because, the distribution doesnt exceed Amy's basis in the partnership.

Amy's share of partnership liabilities are not taxable, because liabilities are never taxed.

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