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David, Mary, and Bill are equal partners in the DMB Partnership, which uses the accrual method of accounting. All three materially participate in the business.
David, Mary, and Bill are equal partners in the DMB Partnership, which uses the accrual method of accounting. All three materially participate in the business. DMB reports financial accounting income of $270,000 for the current year. The partnership used the following information to determine financial accounting income.
| Operating profit (excluding the items listed below) | $177,500 | ||||||||
| Rental income | 23,000 | ||||||||
| Interest income: | |||||||||
| Municipal bonds (tax-exempt) | 20,000 | ||||||||
| Corporate bonds | 2,500 | ||||||||
| Dividend income (all from less-than-20%-owned domestic corporations) | 16,000 | ||||||||
| Gains and losses on property sales: | |||||||||
| Gain on sale of land held as an investment (contributed by David six | |||||||||
| years ago when its basis was $5,000 and its FMV was $12,000) | 40,000 | ||||||||
| Long-term capital gains | 38,000 | ||||||||
| Short-term capital losses | 8,000 | ||||||||
| Sec. 1231 gain | 8,000 | ||||||||
| Unrecaptured Sec. 1250 gain | 51,000 | ||||||||
| Depreciation: | |||||||||
| Rental real estate | 16,000 | ||||||||
| Machinery and equipment | 21,000 | ||||||||
| Interest expense related to: | |||||||||
| Mortgages on rental property | 20,000 | ||||||||
| Loans to acquire municipal bonds | 1,000 | ||||||||
| Guaranteed payments to David 40,000 Low-icome housing expenditures qualifying for credit 18,000 | |||||||||
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