Question

1.

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the C corporation form?

a. Partnership income is subject to a single level of taxation; corporate income is double taxed.

b. Partners in a general partnership have less personal liability for entity claims than shareholders of a C corporation.

c. A partnership typically has easier administrative and filing requirements than does a C corporation.

d. Partnerships may specially allocate income and expenses among the partners, provided the substantial economic effect requirements are met; corporate dividends must be proportionate to shareholdings.

e. All of these choices are advantages of partnership taxation.

2.

At the beginning of the year, Heather's "tax basis" capital account balance in the HEP Partnership was $85,000. During the tax year, Heather contributed property with a basis of $6,000 and a fair market value of $10,000. Her share of the partnership's ordinary income and separately stated income and deduction items was $40,000. At the end of the year, the partnership distributed $15,000 of cash to Heather. In addition, the partnership allocated $12,000 of recourse debt and $10,000 of nonrecourse debt to Heather. What is Heather's ending capital account balance determined using the "tax basis" method?

a. $128,000

b. $126,000

c. $120,000

d. $138,000

e. $116,000

Answer 1

1. ->> b. Partners in a general partnership have less personal liability for entity claims than shareholders of a C corporation.

2.->> e.

Heather's Beginning capital balance $85,000

Add :- Contributed property $ 6,000

Add :- Share of partnership income $40,000

Less :- Distribution during the year ($15,000)

Ending Capital Account balance $116,000

Note :- Liabilities are not included in the partner's capital Account, so, recourse and non recourse debt are not included.