ACCT 2120 CH. 10 TEST
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Central Georgia Technical College *
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2120
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Accounting
Date
Feb 20, 2024
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docx
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ACCT 2120 CH, 10 TEST
Question 1
4 out of 4 points
If Margo and Bruce purchase and operate an ice cream store, for tax purposes they have formed a partnership.
Selected Answer:
True
Correct Answer:
Tru
e
Question 2
0 out of 4 points
The partnership of Felix and Xavier had the following items of income during the current tax year:
Income from operations
$157,000
Tax-exempt interest income
8,000
Dividend income
6,000
What is the total ordinary income from business activities passed through by the partnership for the current tax year?
Selected Answer:
b.
$171,000
Correct Answer:
c.
$157,000
Response Feedback:
Rationale:
Tax-exempt interest and dividends are separately stated items.
Question 3
4 out of 4 points
Loretta contributes property to a partnership in exchange for a 25 percent partnership interest. The property contributed has a fair market value of $45,000 and a basis of $35,000 on the date of the contribution to the partnership. In addition, Loretta receives a 10 percent partnership interest, valued at
$18,000, in exchange for services rendered to the partnership. What is Loretta's basis in her partnership
interest, immediately after these transactions?
Selected Answer:
a.
$53,000
Correct Answer:
a.
$53,000
Response Feedback:
Rationale:
$35,000 + $18,000
Question 4
4 out of 4 points
A partnership will terminate, and its tax year will close if the partnership ceases to carry on any business activity.
Selected Answer:
True
Correct Answer:
Tru
e
Question 5
4 out of 4 points
Which of the following items must be reported separately from ordinary income or loss on a partnership return?
Selected Answer:
d.
Capital losses
Correct Answer:
d.
Capital losses
Question 6
4 out of 4 points
Wallace and Pedersen have equal interests in the capital and profits of the partnership of Wallace and Pedersen. They are otherwise unrelated to each other. On August 1, 2021, Wallace sold 100 shares of Kalmia Mining Corporation to the partnership for its fair market value of $7,000. Wallace had bought the stock in 2012 at a cost of $10,000. What is Wallace's deductible loss for 2022 as a result of the sale
of this stock?
Selected Answer:
a.
$3,000 long-term capital loss
Correct Answer:
a.
$3,000 long-term capital loss
Response Feedback:
Rationale:
$7,000 − $10,000. Since Wallace has only a 50 percent interest, the loss is allowed.
Question 7
4 out of 4 points
Kitty is a 60 percent partner of Tobin Associates. Kitty sells a building to the partnership for $75,000. If the building had an adjusted basis to Kitty of $95,000, how much gain or loss does Kitty recognize on this transaction?
Selected Answer:
b.
$0 gain or loss
Correct Answer:
b.
$0 gain or loss
Response Feedback:
Rationale:
Losses on the sale of property between a more than 50 percent owner and the partnership are generally disallowed.
Question 8
4 out of 4 points
A partnership generally must adopt the same tax year as its majority partners.
Selected Answer:
True
Correct Answer:
Tru
e
Question 9
4 out of 4 points
Phil and Bill each own a 50 percent interest in P&B Interests. P&B Interests has ordinary income for the year of $35,000 before guaranteed payments to Phil. If Phil receives guaranteed payments of $10,000 during the tax year, what is the total ordinary income or loss that should be reported by Bill from the partnership for this tax year?
Selected Answer:
a.
$12,500 income
Correct Answer:
a.
$12,500 income
Response Feedback:
Rationale:
50% × ($35,000 − $10,000)
Question 10
4 out of 4 points
Ownership of a partnership interest by a taxpayer's sibling is considered indirect ownership by the taxpayer.
Selected Answer:
True
Correct Answer:
Tru
e
Question 11
4 out of 4 points
In general, income is recognized by a partner when partnership interest is received in exchange for services rendered to the partnership.
Selected Answer:
True
Correct Answer:
Tru
e
Question 12
4 out of 4 points
Which of the following is true about a limited liability company (LLC)?
Selected Answer:
c.
An LLC's limited liability is similar to a corporation’s.
Correct Answer:
c.
An LLC's limited liability is similar to a corporation’s.
Response Feedback:
Rationale:
An LLC can elect to be treated as either a corporation or a partnership and may also have a single owner.
Question 13
4 out of 4 points
Jayla is a 30 percent partner in the Ghost Partnership. Ghost paid W-2 wages of $100,000 and also made a guaranteed payment to Jayla of $20,000. The amount included as wages in Jayla's wage
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limitation on her QBI deduction is _____.
Selected Answer:
c.
$30,000
Correct Answer:
c.
$30,000
Question 14
0 out of 4 points
Sabrina contributes to a partnership property with an adjusted basis of $75,000. On the date of the contribution, the fair market value of the property is $125,000. What is Sabrina's basis in her partnership interest immediately after the contribution?
Selected Answer:
d.
$125,000
Correct Answer:
c.
$75,000
Response Feedback:
Rationale:
Generally, the basis of the partner's initial interest in the partnership will be equal to the basis of the property contributed.
Question 15
0 out of 4 points
Guaranteed payments made by a partnership must be made to individuals other than partners in the partnership.
Selected Answer:
True
Correct Answer:
Fals
e
Response Feedback:
Rationale:
Guaranteed payments are payments made to a
partner
, generally for services rendered or for use of the partner’s capital.
Question 16
4 out of 4 points
There is no general partner requirement in a limited liability company (LLC).
Selected Answer:
True
Correct Answer:
Tru
e
Question 17
4 out of 4 points
A partnership reports its income on Form 1040.
Selected Answer:
False
Correct Answer:
Fals
e
Response Feedback:
Rationale:
A partnership reports its income on Form 1065.
Question 18
4 out of 4 points
For tax purposes, in computing the ordinary income of a partnership, a deduction is allowed for which of the following?
Selected Answer:
a.
Payments to partners
Correct Answer:
a.
Payments to partners
Response Feedback:
Rationale:
Losses flow through to partners and are not carried back or forward by the partnership. Charitable contributions are separately stated items. Partnerships are not permitted to deduct a personal exemption.
Question 19
4 out of 4 points
Which of the following statements about partnerships is
true
?
Selected Answer:
a.
An LLC is generally treated as a partnership for tax law purposes.
Correct Answer:
a.
An LLC is generally treated as a partnership for tax law purposes.
Response Feedback:
Rationale:
a. General partnerships can be formed without a written agreement.
b.
An LLC is generally treated as a partnership for tax law purposes.
c. General partners can be responsible for the partnership's liabilities.
d. Mere co-ownership of an investment does not necessarily rise to the level of a partnership.
Question 20
4 out of 4 points
A partnership may
not
show a loss as a result of deducting guaranteed payments made to the partners.
Selected Answer:
False
Correct Answer:
Fals
e
Response Feedback:
Rationale:
A partnership may show a loss after deducting guaranteed payments.
Question 21
4 out of 4 points
An equal partnership is formed by Rita and Gerry. Rita contributes cash of $10,000 and a building with a fair market value of $150,000, and an adjusted basis of $55,000, and is subject to a liability of $60,000. Gerry contributes cash of $100,000. What is Rita's basis in her partnership interest
immediately after formation of the partnership?
Selected Answer:
a.
$35,000
Correct Answer:
a.
$35,000
Response Feedback:
Rationale:
$10,000 + $55,000 − (50% × $60,000)
Question 22
4 out of 4 points
A partnership would be forced to terminate and close its tax year if which of the following occurred?
Selected Answer:
a.
Cessation of business activities by the partnership
Correct Answer:
a.
Cessation of business activities by the partnership
Question 23
4 out of 4 points
Losses on transactions between a partnership and its partners are always disallowed.
Selected Answer:
False
Correct Answer:
Fals
e
Response Feedback:
Rationale:
Losses are disallowed for transactions between a partnership and a partner who has a
direct or indirect capital or profits interest in the partnership of more than 50 percent.
Question 24
0 out of 4 points
Which of the following can decrease a partner's interest in a partnership?
Selected Answer:
b.
Correct Answer:
e.
Losses from operations of the partnership
Response Feedback:
Rationale:
Taxable income, gains, and other income all serve to increase a partner's basis in a partnership.
Question 25
4 out of 4 points
Barry owns a 50 percent interest in B&B Interests, a partnership. His brother, Benny, owns a 35 percent interest in that same partnership, and the remaining 15 percent is owned by an unrelated individual. During the current year, Barry sells a rental property with a basis of $60,000 to B&B Interests for $100,000. The partnership intends to hold the rental as inventory for resale. What is the
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amount and nature of Barry's gain or loss on this transaction?
Selected Answer:
c.
$40,000 ordinary income
Correct Answer:
c.
$40,000 ordinary income
Response Feedback:
Rationale:
$100,000 − $60,000. Since Barry has a more than 50 percent direct and indirect interest, the gain will be taxed as ordinary income.
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Problem 10-55 (LO 10-1, LO 10-6) (Algo)
[The following information applies to the questions displayed below.]
Michelle pays $177,000 cash for Brittany's one-third interest in the Westlake Partnership. Just prior to the sale, Brittany's
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Tax Basis
FMV
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