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A, B and C, three individuals, form a general partnership bycontributing the following property in exchange for equal 1/3interests in the partnership’s capital, profits, and losses: Acontributes land, a capital asset that A acquired several yearsago, worth $100 in which A has a tax basis of $40. B contributesmachinery 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 $100in which C has a basis of $90. What gain and/or loss will berecognized by the partners and the partnership on formation? Whatwill be the partnership’s “inside basis” and holding period foreach of the contributed assets? What will be the partners’ “outsidebases” and holding period for their partnership interests?Construct an opening balance sheet for ABC. Your balance sheetshould be in the following form: Assets Liabilities & CapitalBasis Book Liabilities Cash $ $ Other assets Capital Accounts TaxBook A $ $ B C home / study / business / accounting / accountingquestions and answers / 1. a, b and c, three individuals, form ageneral partnership by contributing the following ... Question: 1.A, B and C, three individuals, form a general partnership bycontributing the following proper... (1 bookmark) 1. A, B and C,three individuals, form a general partnership by contributing thefollowing property in exchange for equal 1/3 interests in thepartnership’s capital, profits, and losses: A contributes land, acapital asset that A acquired several years ago, worth $100 inwhich A has a tax basis of $40. B contributes machinery with abasis of $25 and a value of $60, plus $40 in cash. B purchased themachinery several years ago for $75 and has taken $50 ofdepreciation. C contributes inventory with a value of $100 in whichC has a basis of $90. (a) What gain and/or loss will be recognizedby the partners and the partnership on formation? (b) What will bethe partnership’s “inside basis” and holding period for each of thecontributed assets? (c) What will be the partners’ “outside bases”and holding period for their partner

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Jarrod Robel
Jarrod RobelLv2
28 Sep 2019

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1. A, B and C, three individuals, form a general partnership bycontributing the following property in exchange for equal 1/3interests in the partnership’s capital, profits, and losses: Acontributes land, a capital asset that A acquired several yearsago, worth $100 in which A has a tax basis of $40. B contributesmachinery 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 $100in which C has a basis of $90. (a) What gain and/or loss will berecognized by the partners and the partnership on formation? (b)What will be the partnership’s “inside basis” and holding periodfor each of the contributed assets? (c) What will be the partners’“outside bases” and holding period for their partnershipinterests?

Fred and George have been in partnership for many years. Thepartners, who share profits and losses on a 60:40 basis,respectively, wish to retire and have agreed to liquidate thebusi-ness. Liquidation expenses are estimated to be $10,000. At thedate the partnership ceases operations, the balance sheet is asfollows:

Cash . . . . . . . . . . . . . . . . . . $ 100,000 Liabilities .. . . . . . . . . . . . . . . . . . . $ 80,000

Noncash assets . . . . . . . . . . 200,000 Fred, capital . . . .. . . . . . . . . . . . . . 100,000

Total assets . . . . . . . . . . . . . $ 300,000 George, capital. . . . . . . . . . . . . . . 120,000
Total liabilities and capital . . . . . .. $ 300,000

Please complete both Part A and Part B.

Part A

Prepare journal entries for the following transactions:

a. Distributed safe cash payments to the partners.

b. Paid $40,000 of the partnership’s liabilities.

c. Sold noncash assets for $220,000.

d. Distributed safe cash payments to the partners.

e. Paid all remaining partnership liabilities of $40,000.

f. Paid $8,000 in liquidation expenses; no further expenses willbe incurred.

g. Distributed remaining cash held by the business to thepartners.

Part B

Prepare a final statement of partnership liquidation.

Organization of business as partnership or corporation¬¬¬ On May 31, six brothers decided to form the Grimm Brothers Partnership to publish and print children’s stories. The contributions of the brothers and their partnership interests are listed below. They share the economic risk of loss from liabilities according to their partnership interests. Individual Asset Basis to Pr FMV Partnership Interest Al Cash 15,000 15,000 15% Bob Accts Receivable -0- 20,000 20% Clay Office Equipment 13,000 15,000 15% Dave Land 50,000 15,000 15% Ed Building 15,000 150,000 20% Fred Services ? 15,000 15% The following other information about the contributions may be of interest: • Bob contributes accounts receivable from his proprietorship, which uses the cash method of accounting. • Clay uses the office equipment in a small business he owns. When he joins the partnership, he sells the remaining business assets to an outsider. He has claimed $8,000 of MACRS depreciation on the office equipment. • The partnership assumes a $130,000 mortgage on the building Ed contributes. Ed claimed $100,000 of straight-line MACRS depreciation on the commercial property. • Fred, an attorney, drew up all the partnership agreements and filed the necessary paperwork. He receives a full 15% capital and profits interest for his services. 1. How much gain, loss, or income must each partner recognize as a result of the formation? 2. How much gain, loss, or income must the partnership recognize as a result of the formation? 3. What is each partner’s basis in his partnership interest? 4. What is the partnership’s basis in its assets? 5. What is the partnership’s initial book value of each asset? 6. What effects do the depreciation recapture provisions have on the property contributions? 7. What are the tax consequences to the partners and the partnership when the partnership sells for $9,000 the land contributed by Dave? Prior to the sale, the partnership held the land as an investment for two years.

Now answer the same questions assuming that this is the organization of a corporation instead of a partnership.

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