Question

In: Accounting

Good Times is a general partnership with the following balance sheets: Basis FMV Cash $15,000 $15,000...

Good Times is a general partnership with the following balance sheets:

Basis

FMV

Cash

$15,000

$15,000

Capital assets

35,000

75,000

Land

85,000

240,000

   Totals

$135,000

$330,000

Recourse liabilities

$90,000

$90,000

Capital, Claire

15,000

80,000

Capital, Lorie

15,000

80,000

Capital, Tom

15,000

80,000

   Totals

$135,000

$330,000

The partners share equally in profits, losses and capital. Tom is negotiating to sell his interest in the partnership to an unrelated buyer. Assume the buyer is willing to pay $120,000 cash for half Tom’s interest.

  1. What will be the amount realized by Tom on the sale?
  2. What is the tax basis of the interest to be sold by Tom?
  3. How much gain will Tom recognize on the sale?
  4. What will be the buyer’s tax basis in the newly acquired interest?

Solutions

Expert Solution

Answer
A. Calculation of realized amount by Tom on sale
1. It is given that the partners profit sharing ratio is eual. Share of profit of Tom will be 25% as four partners are in Good times.
2. A third party is willing to give 120,000 for half Toms interest.
3. Therefore, realized amount on the sale of Toms interest will be $ 240,000
(Assumed that Tom is going to sell entire interest in good times to third party)
B. Calculation of Tax basis of Toms interest
Assumption: In the question two balance sheets were given. Therefore, it is assumed that the one which has balance sheet total of $ 330,000 as FMV values and the other one as cost. Reason being the land value always appreciates.
Sl No Particulars Amount $
1 Total Assets (FMV) (Note 1) 3,30,000
2 Toms Interest (25%) 82500
Note 1: For the purpose of tax basis calculation, FMV of the asset has to be considered. Carrying cost of assets in Good times books is not relevant.
C. Gain to Tom on sale
Sl No Particulars Amount $
1 Sale consideration 240000
2 Toms Interest 82500
3 Gain on sale 157500
D. Tax basis of buyer
The tax basis of newly acquired interest will be $ 240,000. It is the cost the new buyer has spent in acquiring the interest. Therefore, it is his tax base.

____________________________________________________________________________


Related Solutions

1.The equal XYZ Partnership has the following balance sheets: Basis FMV Property A $39,000 $54,000 Property...
1.The equal XYZ Partnership has the following balance sheets: Basis FMV Property A $39,000 $54,000 Property B $60,000 $42,000 Inventory A $3,000 $15,000 Inventory B $15,000 $12,000 $117,000 $123,000 Capital, X $35,000 $41,000 Capital, Y $41,000 $41,000 Capital, Z $41,000 $41,000 $117,000 $123,000 XYZ has a Code Section 754 election in effect, and X sells her interest to W for $41,000 cash. The two Properties are both capital assets. Inventory A was contributed by X at a time when its...
1. Bust-out Partner had the following balance sheets at year-end: Basis FMV Cash 30,000 30,000 Property...
1. Bust-out Partner had the following balance sheets at year-end: Basis FMV Cash 30,000 30,000 Property 1 33,000 51,000 Property 2 42,000 60,000 Property 3 27,000 45,000 TATAL ASSETS 132,000 186,000 Capital, Sam 33,000 46,500 Capital, Maggie 33,000 46,500 Capital, Jack 66,000 93,000 TOTAL LIABILITIES & CAPITAL 132,000 186,000 On December 31, Jack sold his fifty percent interest in the partnership to an unrelated buyer for $93,000. None of the partnership’s properties constitute inventory unrealized receivables. Assume the partnership does...
1.Partner X is distributed the following in complete liquidation of her partnership interest: Basis                      FMV Cash   
1.Partner X is distributed the following in complete liquidation of her partnership interest: Basis                      FMV Cash                      $30,000                       $30,000 Inventory              $30,000                       $40,000 Land A                  $35,000                       $20,000                               $95,000                       $90,000 X had a basis in her partnership interest of $75,000, so the land’s basis was reduced $20,000 and had only a $15,000 basis in X’s hands. The remaining YZ partnership (which did have a Code Sec. 754 election in effect) had the following remaining assets: Basis                                  FMV Cash                                  $40,000                       $40,000 Inventory                         ...
A and B form the equal AB partnership. A contributes property (FMV = $200,000, basis =...
A and B form the equal AB partnership. A contributes property (FMV = $200,000, basis = $100,000) and B contributes $200,000 cash. The property is depreciated straight line over a 10 year life for both book and tax purposes. The partnership also has other property (FMV = $280,000, basis = $280,000) that is depreciated straight line over 10 years. (1) Under Code Sec. 704(c), how much of the tax depreciation of the contributed property by A in the first year...
Sybil transfers land (FMV = $200,000, basis = $120,000 to the Eve Partnership, in which she...
Sybil transfers land (FMV = $200,000, basis = $120,000 to the Eve Partnership, in which she is a 1/3 partner. Twenty months later the partnership distributes property (FMV = $150,000, basis = $50,000) to Sybil, and her basis in her partnership interest immediately before the distribution (and before the addition of any gain under Section 737) is $120,000   Which would this set of transactions be taxed under, Code Section 707 or 737? If, at the time of the contribution, it...
Partner A received the following in a nonliquidating distribution: Basis FMV Cash $20,000 $20,000 Inventory Item...
Partner A received the following in a nonliquidating distribution: Basis FMV Cash $20,000 $20,000 Inventory Item 1 $15,000 $18,000 Inventory Item 2 $12,000 $4,000 Capital Asset 1 $15,000 $8,000 Capital Asset 2 $10,000 $20,000 $72,000 $70,000 Assume A’s basis in the partnership before the distribution was $35,000. What would the bases of the assets be to A?
BALANCE SHEETS: Assets:                         Cash             &nbs
BALANCE SHEETS: Assets:                         Cash                                        120,000                       160,000                         Accounts Receivable               520,000                       620,000                         Inventory                                305,000                       290,000                         Fixed Assets, net                    410,000                       510,000                         Total Assets                           1,355,000                    1,580,000 Liabilities and Equity:                         Accounts Payable                   350,000                       $375,000                         Long-term Debt                      500,000                       625,000                         Common Stock                       50,000                         75,000                         Retained Earnings                   455,000                       505,000                         Total Liabilities and Equity    1,355,000                    1,580,000 INCOME STATEMENT:             Revenue                                                                                  3,500,000             Cost of Goods Sold                                                                2,275,000             General and Administrative                                                    515,000             Depreciation Expense                                                             120,000             Earnings Before Interest and Taxes                                        590,000             Interest Expense                                                                     40,000             Pretax Net Income                                                                  550,000             Income Taxes                                                                          167,000             Net Income                                                                             383,000              What was Gannon’s investment in net working capital for 2017?
The following gifts are received and sold in the current year: Donor's Adjusted Basis FMV at...
The following gifts are received and sold in the current year: Donor's Adjusted Basis FMV at Time of Gift Gift Tax Paid Selling Price a. $100,000      $400,000      $40,000      $350,000      b. 100,000      80,000      8,000      70,000      c. 100,000      30,000      6,000      40,000      Determine the basis for gain and basis for loss and realized gain or realized loss. Enter "0" if the field should be blank or if an amount is zero. Basis for Gain Basis for Loss Realized Gain Realized Loss a. $...
is a one-third general partner in the DEF partnership. Both D and the partnership are cash...
is a one-third general partner in the DEF partnership. Both D and the partnership are cash method, calendar year taxpayers. D dies at a time when the partnership has earned $15,000 for the current year, and his share of the untaxed and undistributed partnership income for the year is $5,000. Under all of the sale or liquidation agreements described below, D is to be paid $30,000 for his interest, which includes his share of income. Immediately prior to D’s death,...
The following is the current balance sheet for a local partnership of doctors: Cash and current...
The following is the current balance sheet for a local partnership of doctors: Cash and current assets $ 37,000 Liabilities $ 44,000 Land 152,000 A, capital 24,000 Building and equipment (net) 141,000 B, capital 44,000 C, capital 94,000 D, capital 124,000 Totals $ 330,000 Totals $ 330,000 The following questions represent independent situations: E is going to invest enough money in this partnership to receive a 20 percent interest. No goodwill or bonus is to be recorded. How much should...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT