Computing income from the partnership

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Reference no: EM1334658

1) On January 1, Doris and Ellen form a two-member equal partnership with a total capital of $30,000. Doris contributes $15,000 cash, and Ellen contributes depreciable property which does not qualify for MACRS write-off. It has at time of contribution a remaining life of five years, an adjusted basis to Ellen of $1,000, a fair market value of $15,000, and zero estimated salvage value. They agree that the property will be depreciated straight-line over five years and that Doris may claim the maximum depreciation deduction. For the current year Doris may claim depreciation of:

i) $200
ii) $1,000
iii) $1,500
iv) $3,000

2) Fred and George are equal partners. Because Fred devotes his entire time to the operation of the partnership and George is involved only part time, they agree that Fred shall receive a "salary" of $12,000 each year. For the current year the net profit of the partnership (prior to considering Fred's salary) was $10,000. How much will Fred report as his income from the partnership?

i) $1,000
ii) $5,000
iii) $11,000
iv) $12,000

3) Prior to 2006, Quality Corporation had accumulated earnings and profits of $12,000, and during 2006 its net current earnings amounted to $6,000. Enjoying a heavy cash flow, Quality distributed $28,000 cash to its sole stockholder, Happy, who had purchased his stock for $8,000 several years ago. The distribution is reported by Happy as a:

i) Taxable dividend of $18,000
ii) Taxable dividend of $28,000
iii) Taxable dividend of $18,000 and capital gain of $2,000
iv) Taxable dividend of $18,000 and capital gain of $10,000

Reference no: EM1334658

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