Question 1:

Styling Shoes, LLC filed its 20X8 Form 1065 on March 15, 20X9. Styling had three members with the following ownership interests and tax basis at the beginning of the 20X8: (1) Jane, a member with a 25% profits and capital interest and a $8,000 outside basis, (2) Joe, a member with a 45% profits and capital interest and a $13,000 outside basis, and (3) Jack, a member with a 30% profits and capital interest and a $5,000 outside basis. The following items were reported on Styling's Schedule K for the year: ordinary income of $106,000, Section 1231 gain of $18,000, charitable contributions of $28,000, and tax-exempt income of $6,000. In addition, Styling received an additional bank loan of $15,000 during 20X8. What is Jane's tax basis after adjustment for her share of these items?

Multiple Choice

A. $33,500.

B. $37,250.

C. $40,100.

D. $65,650.

Question 2:

Kim received a 1/3 profits and capital interest in Bright Line, LLC in exchange for legal services she provided. In addition to her share of partnership profits or losses, she receives a $36,000 guaranteed payment each year for ongoing services she provides to the LLC. For X4, Bright Line reported the following revenues and expenses: Sales - $156,000, Cost of Goods Sold - $96,000, Depreciation Expense - $51,000, Long-Term Capital Gains - $21,000, Qualified Dividends - $6,600, and Municipal Bond Interest - $3,600. How much ordinary business income (loss) will Bright Line allocate to Kim on her Schedule K-1 for X4?

Multiple Choice

A. ($27,000).

B. $1,200.

C. $2,400.

D. $9,000.

E. None of the choices will be reported as ordinary business income (loss) on Schedule K-1.

Question 3:

Erica and Brett decide to form their new motorcycle business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $57,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $8,500 and a building he bought as a storefront for the motorcycles. The building has a FMV of $52,000, an adjusted basis of $37,000, and is secured by a $42,000 nonrecourse mortgage that the LLC will assume. What is Brett's outside tax basis in his LLC interest?

Multiple Choice

A. $44,500.

B. $50,500.

C. $49,500.

D. $55,500.