Corporate tax : Partnership and Corporation Issues
Project description
Read and respond
Read and respond
Part 1: Formation of a Partnership
Suzanne and Bob form the SB General Partnership as equal partners. They make the following contributions:
Individual
Asset
Basis to Partner
FMV
Suzanne
Cash
45,000
45,000
Inventory (securities)
14,000
15,000
Bob
Land
45,000
40,000
Building
50,000
100,000
The SB Partnership assumes the $80,000 recourse mortgage on the building that Bob contributes, and the partners share the economic risk of loss on the mortgage equally. Bob has claimed $40,000 in straight-line depreciation under the MACRS rules on the building.
Suzanne is a stockbroker and contributed securities from her inventory. The partnership will hold them as an investment.
a. What amount and character of gain or loss must each partner recognize on the formation of the partnership?
b. What is each partner’s basis in his or her partnership interest?
c. What is the partnership’s basis in each asset?
d. What is the partnership’s initial book value of each asset?
e. The partnership holds the securities for two years and then sells them for $20,000. What amount and character of gain must the partnership and each partner report?
Suzanne and Bob form the SB General Partnership as equal partners. They make the following contributions:
Individual
Asset
Basis to Partner
FMV
Suzanne
Cash
45,000
45,000
Inventory (securities)
14,000
15,000
Bob
Land
45,000
40,000
Building
50,000
100,000
The SB Partnership assumes the $80,000 recourse mortgage on the building that Bob contributes, and the partners share the economic risk of loss on the mortgage equally. Bob has claimed $40,000 in straight-line depreciation under the MACRS rules on the building.
Suzanne is a stockbroker and contributed securities from her inventory. The partnership will hold them as an investment.
a. What amount and character of gain or loss must each partner recognize on the formation of the partnership?
b. What is each partner’s basis in his or her partnership interest?
c. What is the partnership’s basis in each asset?
d. What is the partnership’s initial book value of each asset?
e. The partnership holds the securities for two years and then sells them for $20,000. What amount and character of gain must the partnership and each partner report?
AC3220: Week 4 Business Entities
Exercise 4.1
Partnerships and Corporations
Part 2: S Corporations
Glacier Smokeries has been an S corporation since its inception six years ago. On January 1 of the current year, the corporation’s two equal shareholders, Adam and Rodney, had adjusted bases of $175,000 and $225,000, respectively, for their S corporation’s stock. The shareholders plan to have the corporation distribute land with a $75,000 adjusted basis and a $300,000 FMV in the current year. The shareholders also expect ordinary income to be $125,000 in the current year. What tax issues should Adam and Rodney consider with respect to the distribution?
Submission Requirements:
Submit the completed assessment to the Week 2 assessment area as a Word attachment.
Submit your calculations and your answers to the four questions in Part 1 and the one question in Part 2 in a Microsoft Word document.
Show step-by-step solutions to all calculations.
Font: Arial, 12 point
Line spacing: double
Evaluation Criteria:
Exercise will be graded for accuracy.
Exercise 4.1
Partnerships and Corporations
Part 2: S Corporations
Glacier Smokeries has been an S corporation since its inception six years ago. On January 1 of the current year, the corporation’s two equal shareholders, Adam and Rodney, had adjusted bases of $175,000 and $225,000, respectively, for their S corporation’s stock. The shareholders plan to have the corporation distribute land with a $75,000 adjusted basis and a $300,000 FMV in the current year. The shareholders also expect ordinary income to be $125,000 in the current year. What tax issues should Adam and Rodney consider with respect to the distribution?
Submission Requirements:
Submit the completed assessment to the Week 2 assessment area as a Word attachment.
Submit your calculations and your answers to the four questions in Part 1 and the one question in Part 2 in a Microsoft Word document.
Show step-by-step solutions to all calculations.
Font: Arial, 12 point
Line spacing: double
Evaluation Criteria:
Exercise will be graded for accuracy.
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