On the First Day of the Partnership's Tax Year, Karen

question 29

Multiple Choice

On the first day of the partnership's tax year, Karen purchases a 50% interest in a general partnership for $30,000 cash and she materially participates in the operation of the partnership for the entire year. The partnership has $40,000 in recourse liabilities when Karen enters the partnership. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. There is no minimum gain related to the nonrecourse liability. During the year, the partnership incurs a $120,000 loss and a $20,000 increase in liabilities. How much of the loss can Karen report on her tax return for the current year?

• A)$30,000
• B)$40,000
• C)$50,000
• D)$60,000

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Definitions:

Non-Normal Cash Flows

Cash inflows and outflows that do not follow a regular, predictable pattern over time.

MIRR

Modified Internal Rate of Return; a financial measure used to evaluate the attractiveness of investments, adjusting for the costs of investment and for different rates of reinvestment of cash flows.

Required Rate of Return

The minimum return an investor expects to receive from an investment, considering the risk associated with it.

NPV

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. It is used in capital budgeting to analyze the profitability of an investment.