Computational Exercises 21-22

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Chapter 21
Computational Exercises
16. LO.2 Enercio contributes $100,000 in exchange for a 40% interest in the calendar year ABC LLC, which is taxed as a partnership. In 2016, the LLC generates $80,000 of ordinary taxable income. Enercio withdrew $10,000 from the partnership during 2016. Enercio is taxed on what amount of the LLC’s 2016 income? On how much of the $10,000 distribution will Enercio be taxed?
17. LO.3 Henrietta transfers cash of $75,000 and equipment with a fair market value of $25,000 (basis to her as a sole proprietor, $10,000) in exchange for a 40% profit and loss interest worth $100,000 in a partnership.
a. How much are Henrietta’s realized and recognized gains?
b. What is the amount of Henrietta’s basis in her partnership interest?
c. What is the partnership’s basis in the contributed equipment?
18. LO.3 On January 2 of the current year, Fenton and Myers form the FM LLC. Their contributions to the LLC are as follows:
Adjusted
Basis
Fair Market
Value
From Fenton:
Cash $ 50,000 $ 50,000
Accounts receivable –0– 90,000
Inventory 25,000 60,000
From Myers:
Cash 200,000 200,000
Within 30 days of formation, FM collects the receivables and sells the inventory for $60,000 cash. How much income does FM recognize from these transactions, and what is its character?
19. LO.7 During 2017, the Tastee Partnership reported income before guaranteed payments of $92,000. Stella owns a 90% profits interest and works 1,600 hours per year in the business. Euclid owns a 10% profits interest and performs no services for the partnership during the year. For services performed in 2017, Stella receives a “salary” of $6,000 per month. Euclid withdrew $10,000 from the partnership during the year.
a. What is the amount of guaranteed payments made by the partnership during
2017?
b. How much is the partnership’s ordinary income after any deduction for guaranteed payments?
c. How much income will Stella report? Euclid?
20. LO.8 When Padgett Properties LLC was formed, Nova contributed land (value of $200,000 and basis of $50,000) and $100,000 cash, and Oscar contributed cash of $300,000. Both members received a 50% interest in LLC profits and capital.
a. How is the land recorded for § 704(b) book capital account purposes?
b. What is Padgett’s tax basis in the land?
c. If Padgett sells the land several years later for $300,000, how much tax gain will
Nova and Oscar report?
21. LO.10 On June 1 of the current tax year, Elisha and Ezra (who are equal partners) contribute property to form the Double E Partnership. Elisha contributes cash of $200,000. Ezra contributes a building and land with an adjusted basis and fair market value of $340,000, subject to a liability of $140,000. The partnership borrows $20,000 to finance construction of a parking lot in front of the building. At the end of the first year (December 31), the accrual basis partnership owes $8,200 in trade accounts payable to various creditors. The partnership reported net income of $30,000 for the year, which they share equally. Assume that Elisha and Ezra share equally in partnership liabilities. How much is Elisha’s basis in the partnership interest on December 31? Ezra’s?
22. LO.12 Tobias is a 50% member in Solomon LLC, which does not invest in real estate. On January 1, 2016, Tobias’s adjusted basis for his LLC interest is $130,000, and his at-risk amount is $105,000. His share of losses from Solomon for
2016 is $150,000, all of which is passive. He has another investment that produced $90,000 of passive activity income during 2016. (Assume that there were no distributions or changes in liabilities during the year.)
How much of Solomon’s losses may Tobias deduct in 2016 on his Form 1040? How much of the loss is suspended, and what Code provisions cause the suspensions?
23. LO.13 Heather sells land (adjusted basis $75,000; fair market value, $95,000) to a partnership in which she controls an 80% capital interest. The partnership pays her only $50,000 for the land.
a. How much loss does Heather realize and recognize?
b. If the partnership later sells the land to a third party for $80,000, how much gain does that partnership realize and recognize?
24. LO.14 Pablo has a $63,000 basis in his partnership interest. On May 9 of the current tax year, the partnership distributes to him, in a proportionate nonliquidating distribution, cash of $25,000, cash basis receivables with an inside basis of $0 and a fair market value of $16,000, and land with a basis and fair market value to the partnership of $80,000.
a. How much is Pablo’s realized and recognized gain on the distribution?
b. What is Pablo’s basis in the receivables, land, and partnership interest following the distribution?
25. LO.14 When Bruno’s basis in his LLC interest is $150,000, he receives cash of $55,000, a proportionate share of inventory, and land in a distribution that liquidates both the LLC and his entire LLC interest. The inventory has a basis to the
LLC of $45,000 and a fair market value of $48,000. The land’s basis is $70,000, and the fair market value is $60,000. How much gain or loss does Bruno recognize, and what is his basis in the inventory and land received in the distribution?
26. LO.15 Sweeney originally contributed $175,000 in cash for a one-fourth interest in the Gilbert LLC. During the time Sweeney was a member of the LLC, his share of the LLC’s income was $90,000 and he withdrew $75,000 cash. The LLC’s liabilities are $80,000, of which Sweeney’s share is $20,000. Sweeney sells his LLC interest to Jana for $225,000 cash, with Jana assuming Sweeney’s share of the LLC’s liabilities. How much is Sweeney’s gain on the sale, and how much is Jana’s adjusted basis for her LLC interest?


Chapter 22
Computational Exercises
15. LO.10 Matulis, Inc., a calendar year C corporation, owns a single asset with a basis of $325,000 and a fair market value of $800,000. Matulis holds a positive
E & P balance. It elects S corporation status for 2017 and then sells the asset. Compute the corporate-level built-in gains tax that must be paid by Matulis.
16. LO.10 TyroneCo, an S corporation with a positive E & P balance, reports gross receipts for the year totaling $400,000 (of which $200,000 is PII). Expenditures directly connected to the production of the PII total $80,000. Compute Tyrone’s PII tax.
17. LO.6 Dion, a shareholder, owned 20% of MeadowBrook’s stock for 292 days and
25% for the remaining 73 days in the year. Using the per-day allocation method, compute Dion’s share of the following S corporation items.
Schedule K Totals Dion’s Schedule K–1 Totals
Ordinary income $60,000 _________________
Tax-exempt interest 1,000 _________________
Charitable contributions 3,400 _________________
18. LO.6 Noelle, the owner of all of the shares of ClockCo, an S corporation, transfers her stock to Grayson on April 1. ClockCo reports a $70,000 NOL for the entire tax year, but $10,000 of the loss occurs during January–March. Without a short-year election, how much of the loss is allocated to Noelle and how much is allocated to
Grayson? If the corporation makes the short-year election, how much of the loss is allocated to Grayson? The tax year is not a leap year.
19. LO.6 Greiner, Inc., a calendar year S corporation, holds no AEP. During the year,
Chad, an individual Greiner shareholder, receives a cash distribution of $30,000 from the entity. Chad’s basis in his stock is $25,000. Compute Chad’s ordinary income and capital gain from the distribution. What is his stock basis after accounting for the payment?
20. LO.6 Holbrook, a calendar year S corporation, distributes $15,000 cash to its only shareholder, Cody, on December 31. Cody’s basis in his stock is $20,000,
Holbrook’s AAA balance is $8,000, and Holbrook holds $2,500 AEP before the distribution.
Complete the chart below.
Distribution from Account Effect on Stock Basis Balance after Distribution
From AAA Account _________________ _________________ _________________
From AEP Account _________________ _________________ _________________
From Cody’s stock basis _________________ _________________ _________________
21. LO.7 Vogel, Inc., an S corporation for five years, distributes a tract of land held as an investment to Jamari, its majority shareholder. The land was purchased for $45,000 ten years ago and is currently worth $120,000.
a. As a result of the distribution, what is Vogel’s recognized capital gain? How much is reported as a distribution to shareholders?
b. What is the net effect of the distribution on Vogel’s AAA?
c. Assume instead that the land had been purchased for $120,000 and was currently worth $45,000. How much would Vogel recognize as a loss? What would be the net effect on Vogel’s AAA? What would be Jamari’s basis in the land?
22. LO.8 Jonas is a 60% owner of Ard, an S corporation. At the beginning of the year, his stock basis is zero. Jonas’s basis in a $20,000 loan made to Ard and evidenced by Ard’s note has been reduced to $0 by prior losses.
During the year, Jonas’s net share of Ard’s taxable income is $10,000. At the end of the year, Ard makes a $15,000 cash distribution to Jonas. After these transactions, what is Jonas’s basis in his stock, and what is his basis in the debt? What is Jonas’s recognized capital gain?
23. LO.9 Kaiwan, Inc., a calendar year S corporation, is partly owned by Sharrod, whose beginning stock basis is $32,000. During the year, Sharrod’s share of a Kaiwan long-term capital gain (LTCG) is $5,000, and his share of an ordinary loss is $18,000.
Sharrod then receives a $20,000 cash distribution. Compute the following.
a. Sharrod’s deductible loss.
b. Sharrod’s suspended loss.
c. Sharrod’s new basis in the Kaiwan stock.