At the beginning of the year, Penny's "tax basis" capital account balance in the PAL Partnership was $60,000. During the tax year, Penny contributed property with a basis of $10,000 and a fair market value of $30,000. Her share of the partnership's ordinary income and separately stated income and deduction items was $26,000. At the end of the year, the partnership distributed $10,000 of cash to Penny. Also, the partnership allocated $15,000 of recourse debt and $25,000 of nonrecourse debt to Penny. What is Penny's ending capital account balance determined using the "tax basis" method?

a. $96,000.

b. $86,000.

c. $136,000.

d. $101,000.

e. $126,000

Question

Business

Johanna Fitzgerald

11 October, 05:23

At the beginning of the year, Penny's "tax basis" capital account balance in the PAL Partnership was $60,000. During the tax year, Penny contributed property with a basis of $10,000 and a fair market value of $30,000. Her share of the partnership's ordinary income and separately stated income and deduction items was $26,000. At the end of the year, the partnership distributed $10,000 of cash to Penny. Also, the partnership allocated $15,000 of recourse debt and $25,000 of nonrecourse debt to Penny. What is Penny's ending capital account balance determined using the "tax basis" method?

a. $96,000.

b. $86,000.

c. $136,000.

d. $101,000.

e. $126,000

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Answers (1)

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Layton · Answer 1

B) $86,000.

Explanation:

Penny's ending capital account using the tax basis method = beginning capital account balance + property contribution valued at basis not fair market value + Penny's share of the partnership's income - distributions = $60,000 + $10,000 + $26,000 - $10,000 = $86,000