Alfred, a One-Third Profits and Capital Partner in Pizzeria Partnership

question 26

Essay

Alfred, a one-third profits and capital partner in Pizzeria Partnership, needs help in adjusting his tax basis to reflect the information contained in his most recent Schedule K-1 from the partnership. Unfortunately, the Schedule K-1 he recently received was for Year 3 of the partnership, but Alfred only knows that his tax basis at the beginning of Year 2 of the partnership was $23,400. Thankfully, Alfred still has his Schedule K-1 from the partnership for Years 1 and 2.
Using the following information from Alfred's Year 1, Year 2, and Year 3 Schedule K-1, calculate his tax basis the end of Year 2 and Year 3.

---

Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds.

Capital Structure

The composition of a company's funding, including debt, equity, and other financial instruments, which defines how a company finances its overall operations and growth.

Debt

Money that is owed or due to be paid, typically resulting from borrowing funds to be repaid with interest.

Financial Leverage

Financial leverage is the use of borrowed money (debt) to amplify the potential returns from an investment or project.