Question

Partnership BPE's profits and losses are shared equally among the three partners. The adjusted basis of Partner E's interest in the partnership on January 1, 2019 was $65,000. On January 3, 2019, Partner E withdrew $16,000 in cash. The partnership reported $165,000 as ordinary income on its 2019 partnership return. In addition, $6,000 for qualified travel, meal, and entertainment expenses was shown on E's Schedule K-1 of Form 1065. Due to the 50% limitation, $3,000 of the $6,000 is unallowable as a deduction. What is the amount of E's basis in the partnership on December 31, 2019?

Answer 1

Ans:-

Preparation of partners capital account

Dr. E Partner Capital Account. Cr

(Amount in $)

Date	Particulars	Amount	Date	Particulars	Amount
03/01/2019	To Cash a/c	16,000	01/01/2019	By balance b/d	65,000
31/12/2019 (**)	To Traveling expenses a/c	6,000	31/12/2019 (*)	By Profit and loss account	55,000
			31/12/2019 (***)	By Deduction of expenses	6,000
To Balance c/d		1,04,000
		1,26,000			1,26,000

Here,

Above table is drawn from the given information

(*) Given ordinary income is $165,000 and there profit sharing ratio is equal.

And E's share on ordinary income is

=$165,000/3

=$55,000

(**) $6,000 is for qualified travel,meal and entertainment expenses shown in schedule k1 of Form 1065, and these expenses can be shown in partner capital account as expenses incurred by E .

(***) Irrespective of any limitations amount shown in From 1065 is fully eligible for diduction.

So, in question $3,000 is allowed as diduction because of 50% limitations. But from the above statement E is fully eligible for diduction of $6,000. As same shown in the table.

Finally the amount of E's basis is $104,000