Question

A general partnership had the following information at the end of each of the years 20X0, 20X1 and 20x2: Current liabilities for 20X0 $20,000, Long term liabilities $50,000 and Net income or Loss is N/A. For 20X1 the current liabiblities were $20,000, the long term liabilities were $50,000 and Net income or loss was ($40,000- loss), for 20X2 the current liabiblites were $18,000, the long term liabilities were $60,000 and the Net income or loss was $15,000 income. All liabilities are recourse debt and parnter M guaranteed all the long - term liabilities. M, a 10% owner, had a $3,000 basis in the partnership at the end of 20X0. M made no contributions or withdrawals during 20X1 or 20X2. How much is M's basis at the end of 20X2? A. $10,300 B. $10,500 C. $60,300 or D. $60,500.

Answer 1

Particulars	Year	Amount	Working
Opening Balance	2010	3,000.00	Given
Share of Loss	2011	-4,000.00	=-40000*10 %
Share of Profit	2012	1,500.00	=15000*10 %
Recourse - Guarantee of long term liabities	End of 2012	60,000.00	60000 at the end of 2012
Closing Basis		60,500.00(D)	Sum of above

Recourse liabilities are those that any partner bears the economic risk of loss with respect to the liability. Since we are calculating as of 2012, we have to consider the long term liabilities at end of 2012, not the difference bw 2012 to 2011. If the question is for the year 2012 instead of end of 2012, the answer will vary.