In: Accounting
The Oswego Lumber LLP is equally owned by two partners and shows the following balance sheet at the end of the current tax year. Basis FMV Cash $1,200,000 $1,200,000 Unrealized receivables $0 $1,800,000 Long-term securities $2,500,000 $2,700,000 Land $2,700,000 $6,500,000 $6,400,000 $12,200,000 Blue, capital $3,200,000 $6,100,000 Ben, capital $3,200,000 $6,100,000 $6,400,000 $12,200,000 Partner Blue is an active (i.e., "general") partner retiring from the service-oriented partnership. He receives $6,800,000 cash, none of which is stated to be for goodwill. a. How much of the payment is for "unstated goodwill?" The distribution results in "unstated goodwill" of $._______ b. How is the $6,800,000 allocated between a § 736(a) income payment and a § 736(b) property payment? The $6,800,000 cash payment is allocated as follows: § 736(a) income payment: $ _____ § 736(b) property payment: $____
Basis | FMV | |||||
Cash | $1,200,000 | $1,200,000 | ||||
Unrealized receivables | $0 | $1,800,000 | ||||
Long term securities | $2,500,000 | $2,700,000 | ||||
Land | $2,700,000 | $6,500,000 | ||||
total | $6,400,000 | $12,200,000 | ||||
Blue, capital | $3,200,000 | $6,100,000 | ||||
Ben, capital | $3,200,000 | $6,100,000 | ||||
Total | $6,400,000 | $12,200,000 | ||||
The distribution result in unstated goodwill of $700000 (6800000-6100000) | ||||||
The $6800000 cash payment is allocated as follows: | ||||||
Sec 736 (a) income payment $1600000 ($900000 for Unrealised receivables, $700000 for unstated goodwill) | ||||||
Sec 736 (b) property payment $5200000 |
Allocation of payment: | |||||
The total amount paid for partnership property (Section 736(b)) is determined based on the fair market value of the | |||||
partnership property and section 736 (a) payment is the total amount of all payment less the section 736(b) payment. |