Which of the following is not a requirement of the substantial economic effect test? a. An allocation of income must increase the partner's capital account balance, and an allocation of deduction must decrease the § 704(b) book partner's capital account balance. b. Income, gains, losses, and deductions must be allocated to the partners in accordance with their capital contributions. C. A partner with a negative § 704(b) book capital account balance must restore that capital account, generally by contributing cash to the partnership. d. On liquidation of the partner's interest in the partnership, the partner must receive assets that have a fair market value equal to that partner's (positive) § 704(b) book capital account balance.

Which of the following is not a requirement of the substantial economic effect test? a. An allocation of income must increase the partner's capital account balance, and an allocation of deduction must decrease the § 704(b) book partner's capital account balance. b. Income, gains, losses, and deductions must be allocated to the partners in accordance with their capital contributions. C. A partner with a negative § 704(b) book capital account balance must restore that capital account, generally by contributing cash to the partnership. d. On liquidation of the partner's interest in the partnership, the partner must receive assets that have a fair market value equal to that partner's (positive) § 704(b) book capital account balance.

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter21: Partnerships

Section: Chapter Questions

Problem 6BCRQ

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When a partner invests noncash assets in a partnership, the assets should be recorded at their O book value. carrying value. O fair market value. O original cost.
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In accounting for a withdrawal by payment from partnership assets, which statement is FALSE? O The withdrawing partner may be paid using non-cash assets. O Net assets will decrease O Total capital will decrease. O Asset revaluations should bx recorded.
When a partner invests noncash assets in a partnership, the assets should be recorded at their: a) Book value. b) Market value c) Carrying value. d) Original cost.
Which of the following is an element of the requirement that partnership allocations must have substantial economic effect? If an allocation of income, loss, or deduction is made for tax purposes, a similar allocation must be made for partnership book purposes so the partner's capital account (and rights to partnership capital) reflect a corresponding increase or decrease. Liquidations must be made in accordance with partner's capital accounts and a partner with a negative capital account must have the obligation to restore the capital account deficit in case of liquidation. Even if corresponding allocations are made for tax purposes and book purposes, those allocations must be made for economic reasons independent of minimizing taxes based on the partners' individual tax situations. All of these are elements of substantial economic effect
In determining changes to a partner's outside basis, which of the following statements is false? All revenue items increase outside basis even if not taxable and all expenditure items reduce outside basis even if not deductible Only taxable income increases outside basis and only deductible expenditures reduce outside basis A reduction of a partner's share of liabilities reduces outside basis usually a partner will reduce outside basis by the inside basis of any property distribution received
Which of the following is true regarding capital deficiencies? O a Ob Oc Od The partners do not have a legally enforceable claim against the partner with the capital deficiency. If a partner with a capital deficiency is unable to pay the amount owed to the partnership, the partners with debit balances must absorb the loss. The loss is allocated based on the profit and loss ratios between the partners whether with credit or debit balances. if the partner with the capital deficiency pays the amount owed to the partnership, the deficiency is eliminated.
Which of the following is considered a "constructive receipt" of grss income? * a. A partner's share in the income of the general professional partnership is credited to his capital account. b. Payment for the sale is deposited by buyer to the seller's bank account. c. Cancellation of debt of employee by employer in consideration of friendship. d. A and B only O e. All of the above
When the profit and loss agreement provides for the allowance of interest on partner's equity and salaries to partners, why are the partners entitled to these allowances even if the partnership operations results in a loss?
Which of the following obligations below is not included among the lawful obligations of a partner to the partnership with respect to contribution of property: a. To deliver to the partnership at the time it was constituted or on the date stipulated the property he has promised to contribute. b. To be liable in case of default c. To be liable for the fruits of the thing from the time they should have been delivered without the need of any demand. d. To take care of the property before its delivery to the partnership with extra ordinary care as a rule. e. To answer for eviction in case the partnership is deprived of the specific or determinate thing he has contributed to the partnership.
determine whether an allocation had a substantial economic effect on the partners, the courts have long inquired whether the allocation was reflected by an appropriate adjustment in the partners’ capital accounts?
Why are both non-taxable income and non-deductible expenses received and incurred at the partnership level taken into account in determining the basis of the partner? Give an example to Prove your answer.