accounting four problems with A+ answers

19-51Barbara Thompson and Colleen Tiller are equal partners in
the Boteq partnership. Barbara is age 72 and Colleen age 58. Both are unmarried
and the partnership is their sole source of income.
During the current year, Boteq’s records show the following
items of income and expense. In a columnar form, list those items which must be
reported as partnership ordinary income and those which must be reported
separately by the parnership.

(1) Gross profit on sale of goods 40,000
(2) Selling and administrative expenses 30,000

Other items not included in above
(1) Dividends from domestic corporations 1000
(2) Charitable contributions to church 500
(3) Long-term capital gains 2000
(4) Short term capital losses 500
(5) Section 1245 gain on office equipment which had an
adjusted basis at sale of $400 800
(6) Theft of day’s receipts 1200
(7) Theft of Barbara’s fur coat in the pocket of which were
the receipts. Original cost $2500, FMV at date of theft. 1000
(8) Royalty check for Boteq’s $10,000 investment this year
in a widget mining venture 400
(9) Notice of Boteq’s coal percentatge depletion allowance
of $1,000 (the property has been fully depleted for several years)
(10) Expensing of seven-year property under Code Sec. 179,
purchased during the year 2,000
(11) Social Security benefit checks payable to Barbara which
were regularly deposited to Boteq’s account 4,50019-52

Adam, Barbara and Charlotte formed the equal ABC
partnership; Adam and Barabara each contributed cash of $100,000 and Charlotte
contributed land worth $130,000 with a basis of $120,000 and subject to a
mortgage of $30,000.
In the first year (using the cash basis for tax purposes)
they had the following for tax purposes:

Sales 400,000
Purchase of inventory 180,000
Ending inventory 40,000
Depreciation 30,000
Section 179 expense 25,000
Salaries 40,000
Guaranteed payment to Adam 15,000
Purchases of equipment 150,000
Rent expense 20,000
Interest income 5,000
Mortgage interest expense 1,500
Dividends 1,000
Ending accounts receivable 35,000

Depreciation for book purposes was $20,000, and they had a
bad debt accrued expense of $4000 for book purposes, but no actual
charge-offs during the year.
a) What is ABC ordinary business income (for tax
purposes-p.1 line 22, Form 1065) for the year?
b) What are its separately stated items (those that go on
Sch K)?
c) Compute total tax net income, including separately stated
items, and reconcile it with book net income (the M-1 reconciliation would be
the reverse).
d) What are its beginning and ending balance sheets for book
purposes (as would go on Schedule L, Form 1065)?19-53

Mary Black, Nell
Brown, and Louise Gray each has her own computer equipment and service retail
store. In an effort to potentially reduce their costs and increase their
control over supply channels, they buy a plant which manufactures selected
computer supplies and equipment. Each makes an equal cash contribution toward
the purchase of the plant, each has an equal capital and profits interest in
the plant, and they agree to share all losses equally. They own the plant as
tenants in common. The co-owners have a written operating agreement specifying
that each has an equal interest in the plant’s production, each is responsible
for her equal share of expenses, and each owns a proportionate, undivided part
of the plant’s equipment. The agreement also provides that the plant, as such,
does not have the right to market the manufactured computer supplies and
equipment. In lieu of the plant’s selling the manufactured computer supplies
and equipment to other purchasers, Mary, Nell, and Louise agree that each will
take one-third of the plant’s annual output. Each takes her share of the
output, commingles it with other computer equipment and supplies in their
respective computer equipment and service retail stores, and sells it to
customers.
With regard to the plant, research and answer the following
questions:
1. Is the plant a partnership for federal income tax
purposes?
2. If the plant is a partnership for federal income tax
purposes, may it make an election not to be subject to the partnership
provisions of Subchapter K of the Internal Revenue Code?
3. Without regard to your answer to question two, assume
that the plant may elect out of Subchapter K. Are Mary, Nell, and Louise
subject to the self-employment tax on their distributive shares of the plant’s
earnings, assuming the output was purchased by Mary, Nell, and Louise, rather
than being distributed to each?

Smith Properties is a real estate partnership that focuses
on the acquisition and management of commercial and residential real estate in
the Southwestern United States.
Edna Zapata has been a partner in the partnership for the
past 15 years. This year she decided to sell her partnership interest and focus
on other interests. The partnership has the following balance sheets as of the
date she sold her interest.
Tax
Basis FMV
Cash and equivalents 250,000 250,000
Real estate portfolio (includes multiple properties) 2,400,000 6,000,000
Other tangible assets 500,000 500,000
Total assets 3,150,000 6,750,000
Tax
basis FMV
Liabilities (principallu mortgage liabilities on the
partnership’s real estate portfolio) 1,350,000 1,350,000
Partner capital 1,800,000 5,400,000
Total liabilities and capital 3,150,000 6,750,00020-66

Edna owned a one-third interest in parnership capital and
profits. As such , the fair market value of her interest in the partnership was
$1,800,000. However, the partnership has a reputation for wise investment and
management of properties.
The buyer of Edna’s interest in the partnership was willing
to pay a premium for this expertise. Thus Edna sold her interest in the
partnership for $2,000,000.
The buyer also assumed resposibility for Edna’s one-third
share of the partnership’s liabilities. The parntership has a Section 754
election in effect. Determine the amount of the parntership’s basis adjustment
amond the parternship’s assets.
Assume that all of the partnership’s real estate properties
are business-use assets which will generate capital gain upon disposition under
Code Section 1231. Explain how the excess of the purchase price over the fair
market value of the partnership’s
tangible assets will affect the partnership
s post adjustment balance sheet.