Marissa Is a 50% Partner in the BAM Partnership

question 54

Multiple Choice

Marissa is a 50% partner in the BAM Partnership. At the beginning of the tax year, Marissa's basis in the partnership interest was $200,000, including her share of partnership liabilities. During the current year, BAM reported an ordinary loss of $100,000. In addition, BAM distributed $10,000 to Marissa and paid partner Brian a $20,000 consulting fee (neither of these amounts was deducted in determining the $100,000 loss from operations) . At the end of the year, Marissa's share of partnership liabilities decreased by $30,000. Assuming loss limitation rules do not apply, Marissa's basis in the partnership interest at the end of the year is:

• A) $135,000.
• B) $100,000.
• C) $95,000.
• D) $90,000.
• E) None of the above.

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs, both fixed and variable, in the cost of a product.

Variable Costing

A costing method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.

Excess Capacity

The amount by which the actual production of a company exceeds its planned production capacity.

Variable Production Costs

Expenses that change in direct proportion to the level of production output.