Question

4. C and D are equal partners in the CD partnership. C starts the year with an adjusted basis of $400 in the partnership while D starts the year with an adjusted basis of $700.

(a) The partnership distributes cash of$ 500 to C and land, adjusted basis $300 fair market value $500 to D. The partnership thereafter continues operations. What consequences?

(b) Same as (a) except that the land had an adjusted basis of $800 (fair market value still $500). (c) Same as (a) except that the land had a fair market value of $600 and subject to liabilities of $100.

(d) Same as (c) (land has adjusted basis $300, fair market value $600, subject to a liability of $100) except that the distributions were in liquidation of the partnership.

Answer 1

a.In this case the basis of the land is to be raised to $500

Journal

Land A/c Dr 200

To Revalutaion A/c 200

Revalutaion A/c Dr. 200

To C's Capital A/c 100

To D's Capital A/c 100

C's Capital A/c Dr. 500

To Cash 500

D's Capital A/c Dr.500

To Land 500

The consquence is that C's capital balance change from 400 to 0(400+100-500) and D's capital balance change from 700 to 300Cr.(700+100-500)

b. In this case land value to brought down to 500

Revaluation A/c Dr 300

To Land 300

C's Capial A/c Dr. 150

D's Capital A/c Dr.150

To Revaluation A/c 300

C's Capital A/c Dr. 500

To Cash 500

D's Capital A/c Dr.500

To Land 500

The consquence is that C's capital balance change from 400 to 250 Dr.(400-150-500) and D's capital balance change from 700 to 50Cr.(700-150-500)

c.Here it is assumed that land is recorded in the book at fair market value,liabiltiy is to be taken over by partners equally

Liability on Land A/c Dr. 100

To C's Capital A/c 50

To D's Capital A/c 50

C's Capital A/c Dr. 500

To Cash 500

D's Capital A/c Dr.600

To Land 600

The consquence is that C's capital balance change from 400 to 250 Dr. (400-50-600) and D's capital balance change from 700 to 150Cr.(700-50-500)

d.Here the value of land to be raised to 600 and liabiltiy is to be taken over by partners equally

Land A/c Dr 300

To Revalutaion A/c 300

Revalutaion A/c Dr. 300

To C's Capital A/c 150

To D's Capital A/c 150

C's Capital A/c Dr. 500

To Cash 500

D's Capital A/c Dr.600

To Land 600

The consquence is that C's capital balance change from 400 to 50Dr. (400+150-600) and D's capital balance change from 700 to 350Cr.(700+150-500)