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1 October, 09:38

Arthur is a 30 percent partner in the CAR Partnership. At the beginning of the tax year, Arthur's basis in the partnership interest was $60,000, including his share of partnership liabilities. During the current year, CAR reported net ordinary income of $40,000. In addition, CAR distributed $5,000 to each of the partners ($15,000 total). At the end of the year, Arthur's share of partnership liabilities increased by $20,000. Arthur's basis in the partnership interest at the end of the year is:a. $60,000. b. $120,000. c. $87,000. d. $75,000. e. None of these choices are correct.

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  1. 1 October, 09:57
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    c. $87,000

    Explanation:

    The computation of the Arthur's basis in the partnership interest at the end of the year is shown below:

    = His share of partnership liabilities + net operating income share + increased share in liabilities - distributed amount

    = $60,000 + $12,000 + $20,000 - $5,000

    = $87,000

    Net operating income share is

    = $40,000 * 30%

    = $12,000

    We simply applied the above formula
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