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A general partnership had the following information at the end of each of the years for...

A general partnership had the following information at the end of each of the years for 20X0 and 20X1. Current liabilities are $20,000 for 20X0 and $20,000 for 20X1. Long term liabilities for 20X0 of $50,000 and $50,000 for 20X1 and net income(or loss) 20X0 is N/A and 20X1 ($40,000-loss). All liabilities are recourse debt and partner M guaranteed all the long term liabilities. M, a 10% owner, had a $10,000 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 20X1? A. $6000 B. $10,000 C. $33,000 or D. $51,000

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Answer #1

there is no increase in current liabilities in last 2 years and long term liabilities are also the same. M Gauranteed the Long term but it will not affect the m's basis.

there is loss on partnership in the year 20X1 = $ 40,000

M's Shares in loss = 10% of $ 40,000 = $ 4,000

M's Basis at the end of the 20X1 = Opening Basis - loss of the year

M's Basis at the end of the 20X1 = $ 10,000 - $ 4,000

M's Basis at the end of the 20X1 = $ 6,000

Answer = Option A = $ 6,000

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