Answered: At the beginning of Year 1 Ms.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

At the beginning of Year 1 Ms. Mushroom, an individual, purchased a 20 percent interest in Fungi Partnership for $23,000. Ms. Mushroom’s Schedule K-1 reported that her share of Fungi’s debt at year-end was $26,000, and her share of ordinary loss was $44,400. On January 1, Year 2, Ms. Mushroom sold her interest to another partner for $3,400 cash.

Required:

How much of her share of Fungi’s loss can Ms. Mushroom deduct on her Year 1 tax return?
Compute Ms. Mushroom’s recognized gain on sale of her Fungi Partnership interest.
How would your answers to parts a and b change if Fungi were an S corporation instead of a partnership?

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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