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At the beginning of Year 1 Ms. Mushroom, an individual, purchased a 20 percent interest in Fungi Partnership for $22,000. Ms. Mushroom's Schedule K-1 reported that her share of Fungi's debt at year-end was $29,000, and her share of ordinary loss was $46,600. On January 1, Year 2, Ms. Mushroom sold her interest to another partner for $3,700 cash. Required:

At the beginning of Year 1 Ms. Mushroom, an individual, purchased a 20 percent interest in Fungi Partnership for $22,000. Ms. Mushroom's Schedule K-1 reported that her share of Fungi's debt at year-end was $29,000, and her share of ordinary loss was $46,600. On January 1, Year 2, Ms. Mushroom sold her interest to another partner for $3,700 cash. Required:

Accounting
Accounting
27th Edition
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Chapter12: Accounting For Partnerships And Limited Liability Companies
Section: Chapter Questions
Problem 12.1BPR
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Problem: Module 7 Textbook Problem 9 Learning Objectives: • 7-6 Adjust the tax basis in a partnership interest • 7-7 Apply the basis limitation on the deduction of partnership losses • 7-9 Identify similarities and differences in the tax treatment of S corporations versus partnerships At the beginning of Year 1 Ms. Mushroom, an individual, purchased a 20 percent interest in Fungi Partnership for $22,000. Ms. Mushroom's Schedule K-1 reported that her share of Fungi's debt at year-end was $29,000, and her share of ordinary loss was $46,600. On January 1, Year 2, Ms. Mushroom sold her interest to another partner for $3,700 cash. Required: a. How much of her share of Fungi's loss can Ms. Mushroom deduct on her Year 1 tax return? b. Compute Ms. Mushroom's recognized gain on sale of her Fungi Partnership interest. c. How would your answers to parts a and b change if Fungi were an S corporation instead of a partnership? Complete this question by entering your answers in the tabs below. Required A Required B Required C How much of her share of Fungi's loss can Ms. Mushroom deduct on her Year 1 tax return? Deduction < Required A Required B >
Transcribed Image Text:Problem: Module 7 Textbook Problem 9 Learning Objectives: • 7-6 Adjust the tax basis in a partnership interest • 7-7 Apply the basis limitation on the deduction of partnership losses • 7-9 Identify similarities and differences in the tax treatment of S corporations versus partnerships At the beginning of Year 1 Ms. Mushroom, an individual, purchased a 20 percent interest in Fungi Partnership for $22,000. Ms. Mushroom's Schedule K-1 reported that her share of Fungi's debt at year-end was $29,000, and her share of ordinary loss was $46,600. On January 1, Year 2, Ms. Mushroom sold her interest to another partner for $3,700 cash. Required: a. How much of her share of Fungi's loss can Ms. Mushroom deduct on her Year 1 tax return? b. Compute Ms. Mushroom's recognized gain on sale of her Fungi Partnership interest. c. How would your answers to parts a and b change if Fungi were an S corporation instead of a partnership? Complete this question by entering your answers in the tabs below. Required A Required B Required C How much of her share of Fungi's loss can Ms. Mushroom deduct on her Year 1 tax return? Deduction < Required A Required B >
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