Partnership Income and Basis Adjustments. Mark and Pamela are equal partners in
ID: 2425682 • Letter: P
Question
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 $450, 000 Cost of goods sold 210, 000 Dividends on corporate investments 15,000 Tax-exempt interest income 4,000 Sec. 1245 gain (recapture) on equipment sale 33,000 Sec. 1231 gain on equipment sale 18,000 Long-term capital gain on stock sale 12,000 Long-term capital loss on stock sale 10, 000 Short-term capital loss on stock sale 9,000 Depreciation (no Sec. 179 or bonus depreciation components) 27,000 Guaranteed payment to Pamela 30, 000 Meals and entertainment expenses 11,600 Interest expense on loans allocable to: Business debt 42,000 Stock investments 9,200 Tax-exempt bonds 2,800 Principal payment on business loan 14,000 Charitable contributions 5,000 Distributions to partners ($40, 000 each) 80, 000 partnership Formation and Operation Compute the partnership's ordinary income and separately stated items. Show Mark's pamela's shares of the items in . Compute Mark's and Pamela's ending basis in their partnership interests assuming their beginning balances are $ 150, 000 each.Explanation / Answer
1) Compute the partnership’s ordinary income and separately stated items. Ans) Computation of income from ordinary activity Particulars Amount Sales $ 450,000 Less Cost of good sold $ (210,000) $ 240,000 Operating Expenses:- Depreciation $ 27,000 Meals and entertainment expenses $ 11,600 Interest Expense $ 9,200 Interest Expenses on business debt $ 42,000 $ (89,800) Operating income - - Net Operating income $ 150,200 Non Operating Expenses:- Loss on Stock Sales $ 10,000 Loss on short team sales $ 9,000 Tax-exempt bonds $ 2,800 not deductable from the tax Charitable contributions $ 5,000 $ (26,800) Non Operating income:- Dividends on corporate investments $ 15,000 Tax-exempt interest income $ 4,000 Exempt from the tax Gain on Equipment Sales 1245 $ 33,000 Gain on Equipment Sales 1231 $ 18,000 Gain on Stock Sales $ 12,000 $ 82,000 Net income $ 205,400 2) Show Mark’s and Pamela’s shares of the items in Part a. Ans) Share of Profit to Mark 205400/2 $ 102,700 Share of profit to Pamela 205400/2 $ 102,700 3. Compute Mark’s and Pamela’s ending basis in their partnership interests assuming their beginning balances are $150,000 each. Ans) Partners accounts Particulars Mark Pamela Particulars Mark Pamela To Cash Amount(Amount distributed to partners) $ 40,000 $ 40,000 By Balances C/d $ 150,000 $ 150,000 By Share of profit $ 102,700 $ 102,700 To Balance C/D $ 212,700 $ 212,700 $ 252,700 $ 252,700 $ 252,700 $ 252,700