I’m working on a Accounting exercise and need support.

Solve these problems

1.

The JKLM Partnership owns the following assets on October 1 of the current year:

Assets

Partnership’s Basis

FMV

Cash

$12,000

$12,000

Receivables

3,000

3,000

Inventory

5,250

6,000

Machinery*

47,500

60,000

Land

9,125

19,000

Total

$76,875

$100,000

*Sale of machinery for its FMV would result in $12,500 of §1245 depreciation recapture. Thus, the machinery’s FMV and original cost are the same numerical value. Which partnership items are unrealized receivables?

  • Is the partnership’s inventory substantially appreciated?
  • Assume the JKLM Partnership has no liabilities and Jack’s basis in his partnership interest is $ 76,875. On October 1 of the current year, Jack receives a $ 6,250 current distribution in cash, which reduces his partnership interest from one- fourth to one- fifth. What are the tax results of the distribution (i. e., the amount and character of any gain, loss, or income recognized and Jack’s basis in his partnership interest)?

2.

  • The SLD Partnership distributes the following property to Swindler in a distribution that liquidates Swindler’s interest in the partnership. Assume that no Sec. 754 election is in effect. Swindler’s basis in his partnership interest before the distribution is $69,000. The adjusted bases and FMVs of the distributed property to the partnership before the distribution are as follows:
  • Paris Corporation, a calendar year taxpayer, has been an S corporation for several years. Derek and Dawn each own 50% of Paris’s stock. On September 1 of the current year (assume a non- leap year), Paris issues additional common stock to Berlin Corporation for cash. Derek, Dawn, and Berlin each end up owning one- third of Paris’s stock. Paris reports ordinary income of $ 250,000 and a short- term capital loss of $ 30,000 in the current year. Eighty percent of the ordinary income and all the capital loss accrue after Berlin purchases its stock. Paris makes no distributions to its shareholders in the current year. What income and losses do Paris, Berlin, Derek, and Dawn report as a result of the current year’s activities? If there is more than one possible method, discuss both methods.

Assets

Basis

FMV

Cash

$ 5,000

$ 5,000

Inventory

16,000

18,000

Capital Asset 1

20,000

30,000

Capital Asset 2

40,000

35,000

Total

81,000

88,000

Determine Swindler’s basis in each distributed asset. Show computations for full credit.

3.

Anne decides to leave the ABC Partnership after owning the interest for many years. She owns a 52% capital, profits, and loss interest in the general partnership (which is not a service partnership). Anne’s basis in her partnership interest is $ 120,000 just before she leaves the partnership. The partnership agreement does not mention payments to partners who leave the partnership. The partnership has not made an optional basis adjustment election ( Sec. 754). All partnership liabilities are recourse liabilities, and Anne’s share is equal to her loss interest. When Anne leaves the partnership, the assets and liabilities for the partnership are as follows:

Assets

Partnership’s Basis

FMV

Cash

$240,000

$240,000

Inventory

24,000

24,000

Receivables

0

64,000

Land

60,000

100,000

Total

$324,000

$428,000

Liablities

60,000

60,000

Analyze the following two alternatives, and answer the associated questions for each alternative.

  1. Anne could receive a cash payment of $ 220,000 from the partnership to terminate her interest in the partnership. Does Anne or the partnership have any income, deduction, gain, or loss? Determine both the amount and character of any items.
  2. Carrie already owns a 30% general interest in the ABC partnership prior to Anne’s departure. Carrie is willing to buy Anne’s partnership interest for a cash payment of $ 220,000. What income, gain, loss, or deduction will Anne recognize on the sale? What are the tax implications for the partnership if Carrie buys Anne’s interest?

4.

  • Marsha is a shareholder in a calendar year S corporation. At the beginning of the year, her stock basis is $20,000, her share of AAA is $4,000, and her share of corporate AEP is $10,000. She receives a $12,000 distribution, and her share of S corporation items includes a $4,000 long-term capital gain and $18,000 ordinary loss. Determine the effects of these events on AAA, stock basis, and AEP
  • Jacob is a 50% shareholder in Babylon Corporation which is an S corporation. The S corporation had a $40,000 ordinary loss last year and $5,000 of ordinary income this year. Before accounting for last year’s losses, Jacob’s basis in his Babylon stock is $16,000 and Babylon owed Jacob $2,000 (an unsecured note having a basis of $2,000) at the end of last year. In addition, Babylon had $50,000 of other liabilities owed to creditors other than Jacob at the end of last year. What income and loss must Jacob report on his current return as a result of owning the Babylon stock (ignoring the at-risk and passive activity limitations)?

5.

Jeff and John organized Tampa Corporation 18 years ago and have each owned 50% of the corporation since its inception. In the current year, Tampa reports ordinary income/ taxable income of $ 40,000. Assume the business does not qualify for the U. S. production activities deduction. On April 5, Tampa distributes $ 100,000 cash to Jeff and distributes land with a $ 100,000 FMV and a $ 70,000 adjusted basis to John. Tampa had purchased the land as an investment two years ago. What are the tax implications to Tampa, Jeff, and John of the land distribution in each of the situations that follow?

  • Tampa was formed as a C corporation but made an S election three years after its formation. On January 1 of the current year, Jeff’s basis in his stock is $ 100,000, and John’s stock basis is $ 80,000. Tampa had the following earnings balances on January 1 of the current year: Accumulated Adjustments Account $ 125,000 Accumulated E& P 30,000
  • Tampa was formed as a partnership and continues to operate in that form. On January 1 of the current year, Jeff’s basis in his partnership interest is $ 100,000, and John’s partnership basis is $ 80,000. The partnership has no liabilities and no unrecognized precontribution gains.

6.

The ABC Partnership has the following balance sheets at December 31:

Basis

FMV

Cash

$45,000

$45,000

Accounts Receivable

0

108,000

Inventory

66,000

120,000

Land

420,000

285,000

$531,000

$558,000

Capital, A

$177,000

$186,000

Capital, B

177,000

186,000

Capital, C

177,000

186,000

$531,000

$558,000

On that date, C sells his interest in the partnership to unrelated buyer G for $186,000.

  • How much gain or loss will C recognize in connection with the sale to G?
  • What will be the character of C’s gain or loss?

7.

Cato Corporation incorporated on July 1, 2004, in California, with Tim and Elesa, husband and

wife, owning all the Cato stock. On August 15, 2004, Cato made an S election effective for 2004. Tim and Elesa filed the necessary consents to the election. On March 10, 2008, Tim and Elesa transferred 15% of the Cato stock to the Reid and Susan Trust, an irrevocable trust created three years earlier for the benefit of their two minor children. In early 2009, Tim and Elesa’s tax accountant, Susan, learns about the transfer and feels that that the transfer of the stock to the trust may have terminated Cato’s S election. Tim and Elesa’s business was handled by Susan’s manager last year and probably wouldn’t be too pleased if Susan were to second guess her. Susan is wondering whether she should raise the issue with her manager and client or whether she should just remain silent.

  1. Are there any ethical issues that concern you in this situation?
  2. Is Cato’s S election terminated?
  3. What advice would you give Susan, Tim and Elesa?

Support your opinion with relevant tax authorities (code, reg, rev ruls, rev procs, court cases etc.) wherever necessary.