FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Suzy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GP (a general part- nership in which both partners are active owners). Anna contributed land and a building valued at $640,000 (basis of $380,000) in exchange for the remaining 60% interest. Anna’s property was encumbered by qualified nonrecourse financing of $100,000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year:

Sales                                                                                                                    $560,000
Utilities, salaries, depreciation, and other operating expenses         360,000
Short-term capital gain                                                                                  10,000

Tax-exempt interest income                                                                        4,000

Charitable contributions (cash)                                                                  8,000

Distribution to Suzy                                                                                        10,000

Distribution to Anna                                                                                       20,000

During the current tax year, Suz-Anna refinanced the land and building (i.e., the original $100,000 debt was repaid and replaced with new debt). At the end of the year, Suz-Anna held recourse debt of $100,000 for partnership accounts payable (recourse to the partnership but not personally guaranteed by either of the partners) and qualified nonrecourse financing of $200,000.

a. What is Suzy’s basis in Suz-Anna after formation of the partnership? Anna’s basis?

b. What income and separately stated items does the partnership report on Suzy’s Schedule K–1? What income, deduction, and taxes does Suzy report on her tax return? What additional information is needed?

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