Exam 11: Sole Proprietorships and Flow-Through Entities

What is the difference between a limited partnership and a general partnership?

Simpco Partnership has gross operating revenue of $450,000, cost of sales of $150,000, salaries to employees of $40,000, a $25,000 Section 179 expense deduction, $10,000 of other depreciation, interest income of $2,000, a $4,000 capital loss, and a $500 charitable contribution deduction. What are the partnership's bottom line net income and its separately stated items?

A sole proprietor:

The Walden Partnership has two 20 percent general partners and six 10 percent limited partners. During the current year, the partnership paid off $50,000 of notes payable, purchased machinery for $100,000 on a nonrecourse note, borrowed $20,000 for working capital, and had $80,000 income from operations. If the general partners each had a basis of $30,000 in their partnership interests at the beginning of the year, what is each general partner's year-end basis?

What is the difference between recourse and nonrecourse debt for a partnership?

Natalie, a partner in a real estate partnership, receives a nonliquidating distribution consisting of $25,000 cash and property (a Section 1231 asset) valued at $60,000 in July. The partnership's tax basis in the property is $18,000 and Natalie's tax basis in her partnership interest is $21,000. What is Natalie's recognized gain on the distribution and her tax basis in the property received?

Simpco, an S corporation, has gross operating revenue of $450,000, cost of sales of $150,000, salaries and FICA taxes for employees of $40,000, a $25,000 Section 179 expense deduction, $10,000 of other depreciation, interest income of $2,000, a $4,000 capital loss, and a $500 charitable contribution deduction. What are the corporation's net income and its separately stated items?

Sarah is a 25% partner in a partnership that produces $750,000 ordinary income from manufacturing a product, her share of partnership income is $187,500. The partnership paid $150,000 of W-2 wages. Sarah is single and has taxable income of $500,000. What is Sarah's qualified business income deduction for 2018?

Logan's basis in his partnership interest is $20,000 when he receives a pro rata nonliquidating distribution from the partnership of $22,000 cash and inventory with a basis of $2,000 and fair market value of $3,000. What is Logan's recognized gain on this distribution?

Sam has $80,000 of net income from his sole proprietorship in 2018. What is his deduction for AGI for self-employment taxes?

At the beginning of the year, Jill's basis in her 40 percent limited partnership interest was $10,000. During the year, the partnership reported a loss of $90,000 and the partnership obtained a $40,000 recourse loan on some machinery. How much loss may Jill deduct if she has $40,000 of passive income?

There are special rules for an S corporation that must be followed when the corporation decides to liquidate that differs from the rules for C corporations.

The limited liability partnership form of business offers partners protection from all partnership debts.

Which of the following cannot be taxed as a partnership?

Nathan's basis for his interest in the Nabors Partnership was $24,000. In complete liquidation of his interest, Nathan received cash of $4,000 and investment land having a fair market value of $40,000. Nabors Partnership's adjusted basis for this land was $15,000. Nathan's basis for this land is:

For 2018, compare the income and FICA or self-employment tax burdens only of an individual in the 24 percent marginal income tax bracket who owns a business that has operating income of $50,000 if the business is (a) an S corporation or (b) a sole proprietorship. The owner takes $30,000 out of the business as a salary.

Other Objective Questions Indicate by a PRP if the characteristic applies to a sole proprietorship, an SC if it applies to an S corporation, and a PAR if it applies to a partnership, and N if it does not apply to any of the three businesses. A characteristic can apply to more than one entity; write a brief explanation if a characteristic may only apply under certain conditions. -Operating income taxed to entity.

ABC Partnership has two assets: inventory (fair market value = $20,000; basis = $25,000) and land (fair market value = $100,000; basis = $50,000) when Janine sells her 40 percent interest in ABC with a $30,000 basis for $48,000. What is the amount and type of Janine's gain or loss on the sale of her partnership interest?

Simpco Partnership has gross operating revenue of $450,000, cost of sales of $150,000, salaries to employees of $40,000, a $25,000 Section 179 expense deduction, $10,000 of other depreciation, interest income of $2,000, a $4,000 capital loss, and a $500 charitable contribution deduction. Simpson is a 20 percent partner in Simpco Partnership. He has a $60,000 basis in his partnership interest at the end of the year after all income/loss items have been passed through to him. What was his beginning-of-the-year basis in his partnership interest?

The Walden Partnership has two 20 percent general partners and six 10 percent limited partners. During the current year, the partnership paid off $50,000 of notes payable, purchased machinery for $100,000 on a nonrecourse note, borrowed $20,000 for working capital, and had $80,000 income from operations. If one of the limited partners had a $10,000 basis at the beginning of the year, what is his year-end basis?