Question

Arthur is a 30 percent partner in the CAR Partnership. At the beginning of the tax year, Arthur's basis in the partnership interest was $60,000, including his share of partnership liabilities. During the current year, CAR reported net ordinary income of $40,000. In addition, CAR distributed $5,000 to each of the partners ($15,000 total). At the end of the year, Arthur's share of partnership liabilities increased by $20,000. Arthur's basis in the partnership interest at the end of the year is:a. $60,000.b. $120,000.c. $87,000.d. $75,000.e. None of these choices are correct.

Answer 1

Answer:

c. $87,000

Explanation:

The computation of the Arthur's basis in the partnership interest at the end of the year is shown below:

= His share of partnership liabilities + net operating income share + increased share in liabilities - distributed amount

= $60,000 + $12,000 + $20,000 - $5,000

= $87,000

Net operating income share is

= $40,000 × 30%

= $12,000

We simply applied the above formula