Desmond Drury and Ty Wilkins have decided to form a partnership. They
have agreed that Drury is to invest $20,000 and that Wilkins is to
invest $30,000. Drury is to devote full time to the business, and
Wilkins is to devote one-half time. The following plans for the division
of income are being considered:
a. Equal division.
b. In the ratio of original investments.
c. In the ratio of time devoted to the business.
d. Interest of 10% on original investments and the remainder in the ratio of 3:2.
e. Interest of 10% on original investments, salary allowances of
$34,000 to Drury and $17,000 to Wilkins, and the remainder equally.
f. Plan (e), except that Drury is also to be allowed a bonus equal to
20% of the amount by which net income exceeds the salary allowances.
Instructions
For each plan, determine the division of the net income under each of
the following assumptions: (1) net income of $150,000 and (2) net income
of $66,000. Present the data in tabular form, using the following
column headings:
$150,000 $66,000
Plan Drury Wilkins Drury Wilkins
Check: 1. f. Drury net income, $92,900
Click here for the solution: Desmond Drury and Ty Wilkins have decided to form a partnership
Showing posts with label form. Show all posts
Showing posts with label form. Show all posts
Tuesday, September 15, 2015
Sunday, July 12, 2015
On May 31, six brothers decided to form the Grimm Brothers Partnership to publish and print children's stories
On May 31, six brothers decided to form the Grimm Brothers Partnership to publish and print children's stories. The contributions of the brothers and their partnership interests are listed below. They share the economic risk of loss from liabilities according to their partnership interests.
Individual Asset Basis FMV Partnership to Partner Interest
Al Cash $15,000 $15,000 15%
Bob accounts Receiv. 0 20,000 20%
Clay Office equip. 13,000 15,000 15%
Dave Land 50,000 15,000 15%
Ed Building 15,000 150,000 20%
Fred Services ? 15,000 15%
The following other information about the contributions may be of interest:
1. Bob contributes accounts receivable from this proprietorship, which uses the cash method of accounting.
2. Clay uses the office equipment in a small business he owns. When he joins the partnership, he sells the remaining business assets to an outsider. He has claimed $8,000 of MACRS depreciation on the office equipment.
3. The partnership assumes a $130,000 mortgage on the building Ed contributes. Ed claimed $100,000 of straight-line MACRS depreciation on the commercial property.
4. Fred, an attorney, drew up all the partnership agreements and filed the neccessary paperwork. He receives a full 15% capital and profits interest for his services.
a. How much gain, loss or income must each partner recognize as a result of the formation?
b. How much gain, loss, or income must the partnership recognize as a result of the formation?
c. What is each partner's basis in the partnership interest?
d. What is the partnership's basis in its assets?
e. What is the partnership's initial book value of each asset?
f. What effects do the depreciation recapture provisions have on the property contributions?
g. How would your answer to Part a change if Fred received only a profits interest?
h. What are the tax consequences to the partners and the partnership when the partnership sells for $9,000 the land contributed by Dave? Prior to the sale, the partnership held the land as an investment for two years.
Click here for the solution: On May 31, six brothers decided to form the Grimm Brothers Partnership to publish and print children's stories
Individual Asset Basis FMV Partnership to Partner Interest
Al Cash $15,000 $15,000 15%
Bob accounts Receiv. 0 20,000 20%
Clay Office equip. 13,000 15,000 15%
Dave Land 50,000 15,000 15%
Ed Building 15,000 150,000 20%
Fred Services ? 15,000 15%
The following other information about the contributions may be of interest:
1. Bob contributes accounts receivable from this proprietorship, which uses the cash method of accounting.
2. Clay uses the office equipment in a small business he owns. When he joins the partnership, he sells the remaining business assets to an outsider. He has claimed $8,000 of MACRS depreciation on the office equipment.
3. The partnership assumes a $130,000 mortgage on the building Ed contributes. Ed claimed $100,000 of straight-line MACRS depreciation on the commercial property.
4. Fred, an attorney, drew up all the partnership agreements and filed the neccessary paperwork. He receives a full 15% capital and profits interest for his services.
a. How much gain, loss or income must each partner recognize as a result of the formation?
b. How much gain, loss, or income must the partnership recognize as a result of the formation?
c. What is each partner's basis in the partnership interest?
d. What is the partnership's basis in its assets?
e. What is the partnership's initial book value of each asset?
f. What effects do the depreciation recapture provisions have on the property contributions?
g. How would your answer to Part a change if Fred received only a profits interest?
h. What are the tax consequences to the partners and the partnership when the partnership sells for $9,000 the land contributed by Dave? Prior to the sale, the partnership held the land as an investment for two years.
Click here for the solution: On May 31, six brothers decided to form the Grimm Brothers Partnership to publish and print children's stories
On February 1 of year 1, Richard, Mike, Patrick, and Sean form Brothers Corp and transfer the following items
Problem 2-2 On February 1 of year 1, Richard, Mike, Patrick, and Sean form Brothers Corp and transfer the following items: Property Transferred Transferor Asset Basis to Transferor FMV Number of Common Shares Issued Richard Land 12000 30000 400 Building 38000 70000 Mortgage on Land and Building 60000 60000 Mike Machines 25000 40000 300 Patrick Truck 15000 10000 50 Sean Legal Services 0 10000 100 Richard purchased the building and land several years ago, $50,000 for the building, and $12,000 for the land. Depreciation has been claimed using the straight line method. In addition to the machines, Mike received a note from Brothers corp. due in 3 years for $10,000 at the market interest rate. Mike originally purchase the machines 3 years ago for $50,000. In addition to the truck, Patrick received a cash payment of $5,000. Patrick’s truck is 2 years old with an original price of $20,000.
(a) Does the transaction meet the requirements of section 351?
(b) What are the amounts of the gains or losses recognized by Richard, Mike, Patrick, Sean, and Brothers?
(c) What is each shareholder’s basis in their Brothers stock? When does the holding period for the stock begin?
(d) What is Brothers’ basis in its property and services? When does the holding period for each property begin?
Click here for the solution: On February 1 of year 1, Richard, Mike, Patrick, and Sean form Brothers Corp and transfer the following items
(a) Does the transaction meet the requirements of section 351?
(b) What are the amounts of the gains or losses recognized by Richard, Mike, Patrick, Sean, and Brothers?
(c) What is each shareholder’s basis in their Brothers stock? When does the holding period for the stock begin?
(d) What is Brothers’ basis in its property and services? When does the holding period for each property begin?
Click here for the solution: On February 1 of year 1, Richard, Mike, Patrick, and Sean form Brothers Corp and transfer the following items
On June 24th of year 1, Alec, Bryce, and Connor form Triplets Corporation
Problem 2-3 On June 24th of year 1, Alec, Bryce, and Connor form Triplets Corporation. They transfer the following assets: Property Transferred Transferor Asset Basis to Transferor FMV Number of Common Shares Issued Alec Land $200,000.00 $50,000.00 500 Bryce Production Equipment - 25,000.00 250 Connor Accounting Services - 25,000.00 250 Alec purchased the land 5 years ago for $200,000. Bryce purchase the production equipment 3 years ago for $48,000 and it is fully depreciated.
(a) Does the transaction meet the requirements of section 351?
(b) What are the amounts of the gains or losses recognized by Alec, Bryce, Connor, and Triplets?
(c) What is each shareholders basis in their stock? When does the holding period for the stock begin?
(d) What is Triplets’ basis in each asset? When does the holding period begin for each asset?
(e) How might they restructure this transaction to make it more beneficial from a tax perspective?
Click here for the solution: On June 24th of year 1, Alec, Bryce, and Connor form Triplets Corporation
(a) Does the transaction meet the requirements of section 351?
(b) What are the amounts of the gains or losses recognized by Alec, Bryce, Connor, and Triplets?
(c) What is each shareholders basis in their stock? When does the holding period for the stock begin?
(d) What is Triplets’ basis in each asset? When does the holding period begin for each asset?
(e) How might they restructure this transaction to make it more beneficial from a tax perspective?
Click here for the solution: On June 24th of year 1, Alec, Bryce, and Connor form Triplets Corporation
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