Partnership Income and Basis Adjustments. Mark and Pamela are equal partners in MP Partnership. The partnership, Mark, and Pamela are calendar year taxpayers. The partnership incurred the following items in the current year:
Sales $450,000
Cost of goods sold 210,000
Dividends on corporate investments 15,000
Tax-exempt interest income 4,000
Section 1245 gain (recapture) on equipment sale 33,000
Section 1231 gain on equipment sale 18,000
Long-term capital gain on stock sale 12,000
Long-term capital loss on stock sale 10,000
Short-term capital loss on stock sale 9,000
Depreciation (no Sec. 179 or bonus depreciation components) 27,000
Guaranteed payment to Pamela 30,000
Meals and entertainment expenses 11,600
Interest expense on loans allocable to:
Business debt 42,000
Stock investments 9,200
Tax-exempt bonds 2,800
Principal payment on business loan 14,000
Charitable contributions 5,000
Distributions to partners ($40,000 each) 80,000
a. Compute the partnership's ordinary income and separately stated items.
b. Show Mark's and Pamela's shares of the items in Part a.
c. Compute Mark's and Pamela's ending basis in their partnership interests assuming their beginning balances are $150,000 each.