Question

The RB LLC is owned equally by Romer and Brad. At the beginning of the year, Romer’s basis is $40,000 and Brad’s is $32,000. RB reported the following income and expenses for the current tax year.

Net ordinary business income (loss) (Form 1065, page 1, line 28)	($64,000)
Long-term capital gains	12,000
Distribution to Brad	(30,000)
Payment to Great Health Hospital for Romer’s medical expenses	(24,000)

1. Use the ordering rules of Exhibit 10.2 (and the loss limitation rules), and calculate Romer’s basis in his partnership interest at the end of the year. Based on this calculation, what does Romer report on his tax return?

2. Make the same calculation for Brad. What will Brad report on his tax return?

Answer 1

Actual Cost								Standard cost
AH	*	AR		AH	*	SR		SH	*	SR
410	*	$ 20.60		410	*	$ 21.00		380	*	$ 21.00
	$                                 8,446.00				$ 8,610.00				$ 7,980.00
			$ (164.00)				$ 630.00
Direct Labour rate variance			$ (164.00)	Unfavourable
Direct labour efficiency variance			$ 630.00	favourable
Total Direct labour variance			$ 466.00	Unfavourable
	Labour Efficiency Variance =	Actual Hours * Standard Rate - Standard Hours * Standard Rate
		(410 Hours * $ 21 ) - (380 Hours *$21)
		$630	Unfavourable
	Option (D) is Correct
	Note : Standard hours For actual Output = 1900 units * 0.2hours per unit = 380 Hours