Problem 14-16 (a) (LO. 4, 5) Noi and Tu share equally in the profits, losses, an
ID: 2570331 • Letter: P
Question
Problem 14-16 (a) (LO. 4, 5)
Noi and Tu share equally in the profits, losses, and capital of the accrual basis NT Products LLC. Noi is the managing member of the LLC (treated as a general partner) and is a U.S. citizen. At the beginning of the current tax year, Noi's capital account has a balance of $427,000, and the LLC has recourse debts of $118,000 payable to unrelated parties. All partnership recourse debt is shared equally between the partners. The following information about NT's operations for the current year is obtained from the entity's records:
Year-end LLC debt payable to unrelated parties is $80,000. If all transactions are reflected in her beginning capital and basis in the same manner:
a. Noi's basis in the LLC interest at the beginning of the year is $
b. Noi's basis in the LLC interest at the end of the current year is $
Ordinary income $562,000 Dividend income 8,000 Long-term capital loss 18,000 Long-term capital gain 22,000 Charitable contribution 4,000 Cash distribution to Noi 11,000Explanation / Answer
Solution:
a. Assuming that Noi's capital account reflects an accurate number for basis purposes, her
beginning basis is determined as follows:
Capital account balance, beginning of year $427,000
Share of NT's debt ($118,000 × 1/2) 59,000
Noi's basis, beginning of year $486,000
b. Noi's basis at the end of the year is determined as follows:
Capital account balance, beginning of year $427,000
Add Noi's share of:
Taxable income $118,000
Dividend income 4,000 (8,000 x 1/2)
Net long-term capital gain 2,000 (22,000 - 18,000) x 1/2
124,000
$551,000
Less:
Charitable contribution $ 2,000 (4,000 x 1/2)
Cash distribution to Noi 11,000
(13,000)
$538,000
Plus: Share of NT's debt ($80,000 × 1/2) 40,000
NOI's basis, end of year $578,000