Final answer:
To calculate Dale's partnership basis, we start with his initial contribution of $10,000 and adjust for his share of the partnership's net taxable income ($7,500), tax-exempt interest income ($1,000), and debt reduction ($2,000). The distribution does not affect Dale's basis. The resulting basis would be $20,500, which does not match the provided options, indicating a possible error in the question or answer choices.
Step-by-step explanation:
The question is asking to determine Dale's basis in the D&P Partnership at the end of the first year. To calculate Dale's basis, we start with his initial contribution and adjust it based on the partnership's operations and transactions throughout the year. Dale initially contributed $10,000 in cash. The partnership had $15,000 net taxable income, of which Dale's share is 50%, amounting to $7,500. Furthermore, Dale also received his share of $2,000 tax-exempt interest income, which is $1,000. Considering the distribution, Dale received a $3,000 distribution; however, distributions do not reduce a partner's basis. Finally, Dale's share of the $4,000 debt reduction is $2,000, which does increase his basis. Summing up all the adjustments, Dale's basis at the end of the first year would be:
Original Contribution: $10,000
+ 50% of Net Taxable Income: $7,500
+ 50% of Tax-Exempt Interest Income: $1,000
- Distribution: $0 (since distributions do not reduce basis)
+ Reduction of Debt: $2,000
= Total Basis: $20,500
This total amount of $20,500 does not match any of the options provided (a. $16,500 b. $21,500 c. $17,500 d. $18,500); hence, there may be a typo or mistake in the question or answer choices. If options provided had included $20,500, it would be the correct basis for Dale at the end of the first year, assuming no other adjustments or transactions that affect the basis calculation.