Chapter_10_Partnerships_Formation_Operation_and_Basis-ALL ANSWERS CORRECT

1. A partnership is an association formed by two or more taxpayers (which may be any type of entity) to carry on a trade or business. True False ANSWER: True RATIONALE: A partnership can have partners who are indivi ...

1. A partnership is an association formed by two or more taxpayers (which may be any type of entity) to carry on a trade or business. True False ANSWER: True RATIONALE: A partnership can have partners who are individuals, corporations, Subchapter S corporations, trusts, associations or even other partnerships. POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: SCPE.HRMY.15.LO: 10-01 - LO: 10-01 NATIONAL STANDARDS: United States - BUSPORG: Analytic STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 3 min. 2. In a limited liability company, all members are protected from all debts of the partnership unless they personally guaranteed the debt. a True b False ANSWER: True RATIONALE: In a limited liability company, the members are not liable for entity debts unless they guarantee them. POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: SCPE.HRMY.15.LO: 10-01 - LO: 10-01 NATIONAL STANDARDS: United States - BUSPORG: Analytic STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 3 min. 3. A limited partnership (LP) offers all partners protection from claims by the LP’s creditors. a True b False ANSWER: False RATIONALE: A limited partnership must have at least one general partner that is liable for the entity’s debts; that general partner may be a corporation or other entity that is, itself, protected from liability. POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: SCPE.HRMY.15.LO: 10-01 - LO: 10-01 NATIONAL STANDARDS: United States - BUSPORG: Analytic STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 3 min. 4. The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding depreciation methods, treatment of research and experimental costs, calculation of the § 199 deduction, and th § 754 election. a True b FalseANSWER: False RATIONALE: The partnership agreement documents the arrangement among the partners regarding formation, operation, and liquidation of the partnership; allocations of profits, losses, and distributions; and other matters. The elections described are not typically covered in the partnership agreement, and such elections are made by the partnership rather than the partners. POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: SCPE.HRMY.15.LO: 10-01 - LO: 10-01 NATIONAL STANDARDS: United States - BUSPORG: Analytic STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 3 min. 5. The taxable income of a partnership flows through to the partners, who report the income on their tax returns. a True b False ANSWER: True RATIONALE: The partners, not the partnership, pay tax on partnership income. POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: SCPE.HRMY.15.LO: 10-02 - LO: 10-02 NATIONAL STANDARDS: United States - BUSPORG: Analytic STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 3 min. 6. An example of the “aggregate concept” underlying partnership taxation is the fact that the partners (rather than the partnership) pay tax on partnership income. a True b False ANSWER: True RATIONALE: This is an example of the aggregate (or “conduit”) principle of taxation. POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: SCPE.HRMY.15.LO: 10-02 - LO: 10-02 NATIONAL STANDARDS: United States - BUSPORG: Analytic STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 3 min. 7. A partner will have the same profit-sharing, loss-sharing, and capital-sharing ownership percentages. a True b False ANSWER: False RATIONALE: Each partner’s profit-sharing, loss-sharing, and capital-sharing ratios are reported on that partner’s Schedule K-1. In many cases, the three ratios are the same. However, if the partnership agreement provides for special allocations or if capital contributions or distributions differed at some point from the profit- or loss-sharing percent, these ratios may differ for a given partner.POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: SCPE.HRMY.15.LO: 10-02 - LO: 10-02 NATIONAL STANDARDS: United States - BUSPORG: Analytic STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 3 min. 8. The “inside basis” is defined as a partner’s basis in the partnership interest. a True b False ANSWER: False RATIONALE: The “outside basis” is defined as a partner’s basis in the partnership interest. POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: SCPE.HRMY.15.LO: 10-02 - LO: 10-02 NATIONAL STANDARDS: United States - BUSPORG: Analytic STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 3 min. 9. The partnership reports each partner’s share of income to the partner on a Form 1099-MISC. a True b False ANSWER: False RATIONALE: The partners will receive a Schedule K-1 from the partnership that includes the partner’s share of ordinary partnership income and each separately stated item. POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: SCPE.HRMY.15.LO: 10-02 - LO: 10-02 NATIONAL STANDARDS: United States - BUSPORG: Analytic STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 3 min. 10. Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution o appreciated or depreciated property to a partnership in exchange for an interest in the partnership. a True b False ANSWER: True RATIONALE: Section 721 provides for nonrecognition of either gain or loss on a contribution of property t the partnership. POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: SCPE.HRMY.15.LO: 10-03 - LO: 10-03 NATIONAL STANDARDS: United States - BUSPORG: Analytic STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: KnowledgeOTHER: Time: 3 min. 11. Ken and Lars formed the equal KL Partnership during the current year, with Ken contributing $100,000 in cash and Lars contributing land (basis of $60,000, fair market value of $40,000) and equipment (basis of $0, fair market value of $60,000). Lars recognizes a $40,000 gain on the contribution and his basis in his partnership interest is $100,000. a True b False ANSWER: False RATIONALE: Under § 721, neither the partnership nor a partner will generally recognize gain or loss on contribution of property to a partnership. Lar’s basis in his partnership interest is the $60,00 basis in the assets contributed ($60,000 basis in land plus $0 basis in equipment). POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: SCPE.HRMY.15.LO: 10-03 - LO: 10-03 SCPE.HRMY.15.LO: 10-09 - LO: 10-09 NATIONAL STANDARDS: United States - BUSPORG: Analytic STATE STANDARDS: United States - AK - AICPA: FN-Measurement