Question

A, B and C, three individuals, form a general partnership by contributing the following property in exchange for equal 1/3 interests in the partnership’s capital, profits, and losses: A contributes land, a capital asset that A acquired several years ago, worth $100 in which A has a tax basis of $40. B contributes machinery with a basis of $25 and a value of $60, plus $40 in cash. B purchased the machinery several years ago for $75 and has taken $50 of depreciation. C contributes inventory with a value of $100 in which C has a basis of $90. What gain and/or loss will be recognized by the partners and the partnership on formation? What will be the partnership’s “inside basis” and holding period for each of the contributed assets? What will be the partners’ “outside bases” and holding period for their partnership interests? Construct an opening balance sheet for ABC. Your balance sheet should be in the following form: Assets Liabilities & Capital Basis Book Liabilities Cash $ $ Other assets Capital Accounts Tax Book A $ $ B C home / study / business / accounting / accounting questions and answers / 1. a, b and c, three individuals, form a general partnership by contributing the following ... Question: 1. A, B and C, three individuals, form a general partnership by contributing the following proper... (1 bookmark) 1. A, B and C, three individuals, form a general partnership by contributing the following property in exchange for equal 1/3 interests in the partnership’s capital, profits, and losses: A contributes land, a capital asset that A acquired several years ago, worth $100 in which A has a tax basis of $40. B contributes machinery with a basis of $25 and a value of $60, plus $40 in cash. B purchased the machinery several years ago for $75 and has taken $50 of depreciation. C contributes inventory with a value of $100 in which C has a basis of $90. (a) What gain and/or loss will be recognized by the partners and the partnership on formation? (b) What will be the partnership’s “inside basis” and holding period for each of the contributed assets? (c) What will be the partners’ “outside bases” and holding period for their partner

Answer 1

A'S CONTRIBUTION- LAND- MARKET VALUE $100, TAX BASIS $40

B'S CONTRIBUTION-MACHINERY +CASH $40-MARKET VALUE $60 ,TAXBASIS $25

C'S CONTRIBUTION-INVENTORY - MARKET VALUE $100 ,TAX BASIS $90

A) INSIDE BASIS OF PARTNERSHIP FIRM IS TOTAL CONTRIBUTION BY PARTNERS.THAT IS [100+100+100]=$ 300

PARTNERS HAS EQUAL INTEREST IN PARTNERSHIP FIRM,MEANS EACH PARTNER HAS $ 100

C) OUTSIDE BASIS:-

A HAS A BASIS OF $40 AND HAS A SHARE OF $100 MEANS IF HE SELL HIS PARTNERSHIP INTEREST THAN HE WOULD RECOGNISE A GAIN OF $40.

B HAS A BASIS OF $65 [40+25] AND HAS A SHARE OF $100 MEANS IF HE WOULD SELL HIS INTEREST OF PARTNERSHIP THEN HE WOULD HAS GAIN $35.

C HAS A BASIS OF $90 AND HAS A SHARE OF $100 MEANS HE WOULD GAIN $10 IF HE SELL HIS INTEREST IN PARTNERSHIP.

NOTE

THE INSIDE BASIS IS THE PARTNERSHIP'S TAX BASIS IN THE INDIVIDUAL ASSET.THE OUTSIDE BASIS IS THE TAX BASIS OF EACH INDIVIDUAL PARTNER'S INTEREST IN THE PARTNERSHIP.