Question

A and B are equal partners in a personal services partnership. Each partner acquired her partnership interest for cash several years ago. None of the partnership’s assets is Section 704(c) property. The partnership has the following balance sheet:

Assets                                                                         Liabilities and Partners’ Capital

                        A.B.                 F.M.V.                                                 A.B.*               F.M.V.

Cash                $13,000           $12,000                       Liabilities:                               $2,000

Capital Assets:                                                                        Capital:

Collectibles     1,000               3,000                           A                      $10,000           15,000

Other               6,000               2,000                           B                      10,000             15,000

Subtotal          7,000               5,000                                                                                      

Receivables     0                      14,000                                                                                    

Total                $20,000           $32,000                                               $20,000           $32,000

Consider the tax consequences to B on her sale in each of the following alternative situations:

1. B sells her interest for $15,000 cash
2. B sells her interest for $16,000 cash and under the partnership agreement all gain from the sale of the collectibles is allocated to B
3. Same as (a), above, except that the collectibles have a basis of $3,000 and a fair market value of $1,000, and the other capital asset has a basis of $4,000 and a fair market value of $4,000.

Answer 1

solution :

given that Rundle Freight Company owns a truck that cost $33,000.

also given that Currently, the truck’s book value is $27,000, and its expected remaining useful life is five years

mentioned in gi ven indormation that

Rundle has the opportunity to purchase for $28,000 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $7,000 per year more than fuel cost for the new truck.

some other given information The old truck is paid for but, in spite of being in good condition, can be sold for only $16,000.

Calculating the total relevant costs:

	retaining truck	replacing truck
cost of the new truck	$-	$28000
additional fuel cost (5*7000)	$35000	$-
oppurtunity cost	$16000	$-
total cost	$51000	$28000

final decision of retaining old truck :

the purchase cost of ol;d truck and book value are irrelevant

they are sunk cost

therefore they should not be considered

the comparision cost of replacing and retaining truck are given above

from the above table

the company should replace the old truck as it would cost $28000 in replacement as against the cost of reraining truck of $51000