Multiple choice Questions:
1. Which of the following is not a partnership for tax purposes?
a. Willis and James purchase and operate a shoe store.
b. Sharon and Gary operate an accounting practice together.
c. Lillian and Don purchase real estate together as an investment, not as a business.
d. Carlos and Michael purchase and operate a hardware store.
e. All of the above are partnerships.
2. Which of the following is a partnership for tax purposes?
a. Jackson and Wilson purchase and operate a shoe store as a corporation.
b. Linda and Bill purchase an automobile and operate a limousine service.
c. Carey and Gene purchase a condominium and hold it as rental property.
d. Laura purchases a drug store and hires Miles to manage it.
e. None of the above.
3. A partner’s interest in a partnership is decreased by:
a. Capital gains of the partnership
b. Distributions from the partnership
c. Taxable income of the partnership
d. Additional contributions by the partner
e. None of the above
4. Olson contributes property with an adjusted basis of $75,000 and a fair market value of $100,000 to O&W Associates, a partnership, in exchange for a 75 percent interest in the partnership. What is the partnership’s basis in the property contributed?
a. $50,000
b. $75,000
c. $100,000
d. $125,000
e. None of the above
5. Linda and Ellen form an equal partnership. Linda contributes cash of $20,000 in exchange for a 50 percent partnership interest. Ellen contributes property with a fair market value of $30,000 (adjusted basis of $18,000) and subject to a liability of $10,000 in exchange for her 50 percent interest in the partnership. What amount of gain must Ellen recognize as a result of her transfer of property to the partnership?
a. $7,000
b. $14,000
c. $20,000
d. $0
e. None of the above
6. Which of the following items do not have to be reported separately on a partnership return?
a. Miscellaneous income
b. Casualty gains and losses
c. Tax-exempt income
d. Capital gains and losses
e. Charitable contributions
7. When calculating ordinary income, partnerships are not allowed which of the following deductions?
a. Miscellaneous expenses
b. Wages and salaries
c. Depreciation
d. Cost of goods sold
e. Personal exemptions