It would be easy to understand if you could draw a capital account for George

The share of partnership liability 40,000/2  =20,000+contributions 12,500 = opening balance 32, 500

Share of interest income - share of business loss = -11,000

reduction is partnership liability  40,000-24,000 = 16,000/2  =8,000

32,500-11,000-8,000=13,500

Alternatively, ignore the opening share of partnership liability

12,500-11000+12,000=13,500.

Hope this helps you.

Entourage wrote: Hey guys, I'm studying partnership taxation right now and I have a question about one of the MC questions.  It's CPA-06893 and I uploaded a picture of it below.  Is there an error in this question?  I don't see anything about a deceased partner so how am I supposed to know that I should be taking 1/3 the liability.  Please let me know.  Also, is there any easier way to copy questions from Becker without having to take a picture of them?  Thank you for all the help!

You dont take their share of partnership liability at the beginning of the year because it has changed from the beginning of the year to the end of the year. As such, you must calculate the partner's share of the change.

Total partnership liability was $40,000 at the beg. of year and $24,000 at end of year. This means there was a $16,000 REDUCTION of liability during the year. If partnership liability increases a partner's basis, than a reduction decreases their basis, but remember, only by their share (which in this case is 50%). So 50% of the $16,000 decrease change is an $8,000 reduction.