A is corrent. Since Lewis’ share of profits and losses is 40%, Lewis’ December 31, 2011 basis of $18,000 is increased by $20,000 (40% of $50,000) and decreased by $4,000 (40% of $10,000) resulting in a basis of $34,000 at December 31, 2012.
B is incorrect. Lewis’ share of the loss reduces his basis.
C is incorrect. Lewis’ share of income increases his basis.
D is incorrect. Lewis’ share of the loss reduces his basis.
