Video: Partnerships: Formation - Practice Questions

In this lesson, ease into the intricacies of partnership formations with Nick Palazzolo, CPA, as he tackles practice questions that shed light on how partner contributions impact basis calculations. Nick breaks down a partner's basis by examining different forms of contributions—from cash to services—and how these are valued within the partnership structure. He also demystifies the allocation of profits within a limited partnership agreement, guiding you through computations that determine a limited partner's share based on ownership percentage and profit tiers. Through these examples, you'll gain clarity on essential concepts like basis determination and profit allocation, honing skills that are integral to mastering partnership taxation and solidifying the foundation for a variety of exam scenarios.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Let's run through some multiple choice questions for partnerships. Starting off, a partner received a partnership interest with a fair market value of $55,000 in exchange for the following items. So these were the items contributed by the partner into the partnership. What is the partner's basis in the partnership interest? Well, let's run through it together. The partner's basis in an interest is determined by adding the basis of the cash and property contributed. We've got $20,000 and $10,000. Now services rendered can't have a basis just inherently by what they are. They're not physical assets. And as such, but services do have a fair market value. So what would that be? Well, maybe the partner did some accounting work or maybe the partner's good at painting. So they painted the office building, something like that. It could be anything. Those are just items to envision. So we take into account the $20,000 basis of, we take into account the basis of any of the physical items such as cash or property. And then services rendered, we are gonna take into account the $5,000. We add that all together, 20,000, 10,000, 5,000. That gives us a whopping total of $35,000. There we go. There we go. That's a pretty simple question. I mean, this should be your bread and butter. Practice as many partnership questions as possible. This is obviously gonna be incredibly important for the exam. The more you can see about what's your basis, what's your basis at the end of the year, what items affect your basis, make sure you're familiar with the tax forms. All of that is going to be critical. Moving on to our next wonderful question here, we've got a limited partnership that has an agreement and it provides for the following

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Partnerships

Module: 3 Concepts, 42 Videos

Partnerships: Formation Overview

2:59

Introduction to Partnerships: Formation

4:13

Partnership Stages

10:30

Types of Partners