Question

Mary is a 50% general partner in the WJM Partnership. The partnership's records for the current year show the           following:

Gross receipts from sales	$670,000
Cost of sales	(500,000)
Advertising expense	(96,000)
Charitable contributions	(25,000)
Dividend income	48,000
Guaranteed payment to Mary	(12,000)
Short-term capital loss	(30,000)

Mary's outside basis at the beginning of the current year was     $125,000. During the year, partnership liabilities decreased by $80,000 and the partnership made cash distributions to Mary of $55,000.

Required:

(a) Calculate the partnership's ordinary business income for the current year.

(b) Calculate Mary's outside basis as of the end of the current year.

Answer 1

a

Particulars	Amount
Sales	$           670,000
Cost of sales	$         (500,000)
Advertisement	$            (96,000)
Guaranteed payment	$            (12,000)
Ordinary income	$             62,000

b

Particulars	Amount
Beginning basis	$           125,000
Add: share of income and loss
Profit	$             31,000
Charity	$            (12,500)
Capital loss	$            (15,000)
Dividend	$             24,000
	$           152,500
Less: distribution	$            (55,000)
Less: share of debt decrease	$            (40,000)
Ending basis	$             57,500