Mark and Pamela are equal partners in MP Partnership. The partnership, Mark, and
ID: 2418352 • Letter: M
Question
Mark and Pamela are equal partners in MP Partnership. The partnership, Mark, and Pamela are calendar year taxpayers. The part- nership incurred the following items in the current year:
Sales 450,000
Cost of goods sold 210,000
Dividends on corporate investments 15,000
Tax-exempt interest income 4,000
Sec. 1245 gain (recapture) on equipment sale 33,000
Sec. 1231 gain on equipment sale 18,000
Long-term capital gain on stock sale 12,000
Long-term capital loss on stock sale 10,000
Short-term capital loss on stock sale 9,000
Depreciation (no Sec. 179 or bonus depreciation components) 27,000
Guaranteed payment to Pamela 30,000
Meals and entertainment expenses 11,600
Interest expense on loans allocable to:
Business debt 42,000
Stock investments 9,200
Tax-exempt bonds 2,800
Principal payment on business loan 14,000
Charitable contributions 5,000
Distributions to partners ($40,000 each) 80,000
a. Compute the partnership’s ordinary income and separately stated items.
b. Show Mark’s and Pamela’s shares of the items in Part a.
c. Compute Mark’s and Pamela’s ending basis in their partnership interests assuming their beginning balances are $150,000 each.
Explanation / Answer
a Calculation of ordinary income and separately stated items Sales 450000 Less: Cost of goods sold 210000 Gross Profit 240000 Add: Other Incomes & gains Tax exempt interest income 4000 Dividends on Corporate investments 15000 Gain on Equipment Sale(Sec 1245) 33000 Gain on Equipment Sale(Sec 1231) 18000 Long term capital gain on stock sale 12000 Long term capital Loss on stock sale -10000 Short term capital loss on stock sale -9000 63000 Less Other Expenses Depreciation 27000 Meals and Entertainment Expenses 11600 Interest Expense on loans(42000+9200+2800) 54000 Charitable Conrtibutions 5000 97600 Net Income 205400 b Calculation of share of two partners of the income: Both are equal partners i.e they share the net income equally Pamela's Share = 205400/2 = 102700 Mark's share 102700 c Calculation of ending balances of partners Particulars Mark Pamela Opening balance 150000 150000 add Share in income 102700 102700 less Distributed by them 40000 40000 Ending balances 212700 212700
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