Question

"Partnership LIFE's profits and losses are shared equally among the four partners. The adjusted basis of Partner E's interest in the partnership on December 31, Year 1, was $25,000. On January 2, Year 2, Partner E withdrew $10,000 cash. The partnership reported $200,000 as ordinary income on its Year 2 partnership return. In addition, $5,000 for qualified travel, meals, and entertainment was shown on a separate attachment to E's Schedule K-1 of Form 1065. Due to the limitation, $2,500 of the $5,000 is unallowable as a deduction.

Required:
What is the amount of E's basis in the partnership on December 31, Year 2?

Answer 1

$62,500

Step-by-step explanation:

As it is mentioned above the partners share profit and losses equally. So If there are four partners the proportion should be 25%

So year 2 Profit share for partner E would be 200,000 x 25% = $50,000

So the basis of partner E in year 1 = $25,000

LESS: Partner E drawings = ($10,000)

ADD: Profit share for year 2 = $50,000

LESS: Allowable expenditure = ($2,500)

Amoun of E's basis in year 2 = $62,500i