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