The KL Partnership is owned equally by Kayla and Lisa. At the beginning of the y
ID: 2577185 • Letter: T
Question
The KL Partnership is owned equally by Kayla and Lisa. At the beginning of the year, Kayla’s basis is $20,000 and Lisa’s basis is $16,000. Partnership debt did not change from the beginning to the end of the tax year. KL reported the following income and expenses for the current tax year.
If required, use the minus sign to indicate an ordinary business loss. If an answer is zero, enter "0".
a. Prepare an Excel spreadsheet that could be used by a CPA firm to accumulate KL’s information that would be reported on Form 1065, page 1 [Ordinary business income (loss)] and page 4 (Schedule K).
Using your spreadsheet as a source document, answer the following.
How much is the partnership’s ordinary business income (loss) on page 1?
$.
What amount is shown on lines 1, 9a and 20 on Schedule K?
Line 1: $
Line 9a: $ 6,000
Line 20: $
b. Use the ordering rules of Exhibit 21.2 (and the loss limitation rules), and calculate Kayla’s basis in her partnership interest at the end of the year.
Basis before loss allocation: $
Ordinary loss allowed under § 704(d): $
Ending basis in interest: $
Based on this calculation, what does Kayla report on her tax return?
She reports a long-term capital gain of $$__ and ordinary income of $$_
Feedback
Partially correct
c. Use the ordering rules of Exhibit 21.2 (and the loss limitation rules), and calculate Lisa ’s basis in her partnership interest at the end of the year.
Basis before loss allocation: $
Ordinary loss allowed under § 704(d): $
Ending basis in interest: $
Based on this calculation, what does Lisa report on her tax return?
She reports a long-term capital gain of $ and ordinary loss of $$
d. Do the amounts you calculated in part (b) and part (c) equal the amounts shown on your Excel spreadsheet?
Yes/NO , because the spreadsheet can only be used is use to determine amounts at the partner level as long as the loss is suspended .
Sales revenue $100,000 Cost of sales 80,000 Distribution to Lisa 15,000 Depreciation expense 20,000 Utilities 14,000 Rent expense 18,000 Long-term capital gain 6,000 Payment to Mercy Hospital for Kayla's medical expenses 12,000Explanation / Answer
Sales revenue 100,000 Cost of sales -80,000 Depreciation expense -20,000 Utilities -14,000 Rent -18,000 Total ordinary income/Loss -32,000 Separately stated items: Long-term capital gain 6,000 Separately stated items for the partnership: - Distribution to Lisa: $15,000 - Long-term capital gain: $6,000 - Payment to Mercy Hospital for Kayla’s medical expenses: $12,000 Beginning basis 20000 Share of partnership loss -16000 Share of separately stated income items: Long-term capital gain 3000 Distribution (payment for medical expenses) -12000 Ending basis in interest -5000 These items are reported on Lisa’s personal income tax return for the year. Beginning basis 16000 Share of partnership loss -16000 Share of separately stated income items: Long-term capital gain 3000 Distribution to Lisa -15000 Ending basis in interest -12000
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