A and B are partners of the AB partnership. A has a 30% interest and B has a 70% interest. A contributed land with a basis of $20,000 and a fair market value of $70,000 and equipment with a basis of $10,000 and a fair market value of $50,000.B contributed cash of $40,000, equipment “A” with a basis of $100,000 and a fair market value of $70,000, and other equipment “B” with a basis of $90,000, fair market value of $140,000. In addition to the items listed below, assume that the partnership sold the equipment that A contributed for $60,000 and sold the “A” equipment that B contributed for $80,000

 

Sales                                                                    $260,000

Cost of Sales                                                    $150,000

Capital Losses                                                  $ 25,000

Utilities, salaries, etc.                                   $20,000

Charitable Contributions                             $ 5,000

Non-deductible expenses                         $ 7,500

Distribution to A                                             $7,000

Distribution to B                                             $9,000

 

Which items will be separately stated?

What is the partnership's income/loss from operations?

Compute each partner’s 704(b) account

How much total income/loss will be allocated to A? to B?

Prepare a reconciliation of book income and taxable income. Reconcile the ending 704(b) capital account balance to the ending partner’s capital by starting with contributions plus/minus income fewer distributions.