Don and Joe went into business together as equal co-owners. Joe had a lot of money but no business sense and Don had the “know how”. Don and Joe each invested $10,000 and Joe loaned the business $90,000. Chase loaned the business another $100,000 after Joe and Don agreed to guarantee the loan. In the first year, as is typical, the business struggled and incurred ordinary operating income of $50,000, excluding the payment promised to Don of $65,000 annually for his labor. The business earned interest income of $2,000, a short term capital loss of $4,000, and made qualified charitable contributions of $1,000. In the second year of business ordinary operating income was $32,000. including the promised amount for Don’s labor. The business earned $1,200 in interest income and incurred a $1,500 capital gain and paid $2,500 in qualified charitable contributions. Joe was repaid $10,000 for his loan and Chase received $3,000 in principal payments. An equal distribution of $4,000 was made to each owner. Calculate both owners “at risk” basis at year end for both years, showing all your work (1) first assuming the entity is a partnership and (2) second assuming it is a S Corporation. Please follow the format provided here. Year 1 Partnership Year 2 Joe Don Joe Don Beg Basis Property Contributed Liability Increase Liability Decrease Ordinary Income Separately Stated Items Distributions Ending Basis
Don and Joe went into business together as equal co-owners. Joe had a lot of money but no business sense and Don had the “know how”. Don and Joe each invested $10,000 and Joe loaned the business $90,000. Chase loaned the business another $100,000 after Joe and Don agreed to guarantee the loan. In the first year, as is typical, the business struggled and incurred ordinary operating income of $50,000, excluding the payment promised to Don of $65,000 annually for his labor. The business earned interest income of $2,000, a short term capital loss of $4,000, and made qualified charitable contributions of $1,000. In the second year of business ordinary operating income was $32,000. including the promised amount for Don’s labor. The business earned $1,200 in interest income and incurred a $1,500
Year 1 Partnership Year 2
Joe Don Joe Don
Beg Basis
Property Contributed
Liability Increase
Liability Decrease
Ordinary Income
Separately Stated Items
Distributions
Ending Basis
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