On jan 1 2011, martha carnes, fresh out of college, contributed $10,000 for a 30

Question

On jan 1 2011, martha carnes, fresh out of college, contributed $10,000 for a 30% interest in an accounting partnership. The senior partner was not attentive to the work, and the first year they were sued for malpractice and a judgment of $100,000 was entered against the firm. The firm borrowed $50,000 in 2011 to assist in its payment. The debt was repaid in 2013. The following shows the results of the partership operations:

2011 loss $100,000

2012 gain 10,000

2013 gain 50,000

2014 gain 100,000

Compute martha's reportable income (loss) for each year and the basis of her partnership interest at the end of each year.

Explanation / Answer

Martha Carnes 0.3 10000 Particulars 2011 2012 2013 2014 Results -100000 10000 50000 100000 Extra Ordinary Losses 100000 0 0 0 Reporatable Income 0 10000 50000 100000 Share of Martha Cranes 0 3000 15000 30000 NOTE: Repayment of Debt does not effect the Profit & loss Account Martha Carnes 0.3 10000 Particulars 2011 2012 2013 2014 Results -100000 10000 50000 100000 Extra Ordinary Losses 100000 0 0 0 Reporatable Income 0 10000 50000 100000 Share of Martha Cranes 0 3000 15000 30000 NOTE: Repayment of Debt does not effect the Profit & loss Account

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