Question

In: Accounting

At the end of year 1, Tony had a tax basis of $40,000 in Tall Ladders,...

At the end of year 1, Tony had a tax basis of $40,000 in Tall Ladders, Limited Partnership. Tony has a 20 percent profits interest in Tall Ladders. For year 2, Tall Ladders will pay Tony a $10,000 guaranteed payment for extra services he provides to the partnership. Given the following Income Statement and Balance Sheet from Tall Ladders, what is Tony's adjusted tax basis at the end of year 2? (Show all work) (This is all income provided)

TALL LADDERS, LP

Income Statement

Year 2

Sales

65,000

COGS

(47,000

)

Gross Profit

18,000

Interest Income

3,000

Dividends

5,000

Long Term Capital Gain

10,000

Other Income

15,000

Total Other Income

33,000

MACRS Depreciation

(20,000

)

Guaranteed Payments

(10,000

)

Charitable Contribution

(10,000

)

Fines and Penalties

(4,500

)

Other Expenses

(8,500

)

Total other Expenses

(53,000

)

Net Income (Loss)

(2,000

)

TALL LADDERS, LP

Balance Sheet

Year 1

Year 2

Assets

120,000

270,000

Nonrecourse Liabilities

50,000

180,000

Partner's Capital

70,000

90,000

Solutions

Expert Solution

Answer = Tony's adjusted basis at the end of year 2 is $65,600. The required computations are reflected intables below:

TALL LADDER, LP
Account Tony 20%
Sales 65000
Other income 15000
COGS (47000)
MACRS depreciation (20000)
Gauranteed payment (10000)
Other expenses (8500)
Ordinary business income(loss) (5500) (1100)
Interest income 3000 600
Dividend 5000 1000
Lomg tern capital gain 10000 2000
Gauranteed payment 10000 10000
Charitable contribution (10000) (2000)
Fines and penalties (4500) (900)
TONY'S OUTSIDE BASIS
Initial tax basis 40000
Deemed cash contribution from debt increase 26000
Interest income 600
Dividend 1000
LTCG 2000
Fines and penalties (900)
Ordinary business loss (1100)
Charitable contributiom (2000)
Adjusted tax basis 65600

* Note that the gauranteed payment received by the partner are not directly included in their tax basis calculation.


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