Bryan and Cody each contributed $120,000 to the newly formed BC Partnership in exchange for a 50% interest. The partnership used theavailable funds to acquire equipment costing $200,000 and to fund current operating expenses. The partnership agreement provides thatdepreciation will be allocated 80% to Bryan and 20% to Cody. All other items of income and loss will be allocated equally between thepartners.Upon liquidation of the partnership, property will be distributed to the partners in accordance with their § 704(b) book capital accountbalances. Any partner with a negative capital account must contribute cash in the amount of the negative balance to restore the capitalaccount to $0.In its first year, the partnership reported an ordinary loss (before depreciation) of $80,000 and depreciation expense of $36,000. In itssecond year, the partnership reported $40,000 of income from operations (before depreciation), and it reported depreciation expense of$57,600.a. Calculate the partners' bases in their partnership interests at the end of the first and second tax years.Bryan's BasisCody's BasisCapital contribution-Year 1Loss allocation-Year 1Depreciation allocation-Year 1Basis at the end of Year 1Income allocation-Year 2Depreciation allocation-Year 2Basis at the end of Year 2sa va a cabeza a ca$$$120,000 ✓40,00028,800 ✓51,200 ✓20,000 ✓46,080 ✓25,120✓120,000 ✓40,0007,200 ✔72,800✓20,000 ✓11,520 ✓81,280✓ b. Does the allocation provided in the partnership agreement have an "economic effect"?, because (1) gains, income, loss, and other allocations aredistributions are in accordance with endingYesreflected in capital account balances; (2) liquidatingcapital account balances; and (3) deficit capital accountsmust be restored.c. Now assume that on the first day of the third tax year, the partnership sells the equipment for $150,000. The gain on the sale isallocated equally to the partners. The partnership distributes all cash in accordance with the partners' capital account balances, and thepartnership liquidates. How will partnership cash balances be distributed to the partners upon liquidation? (Hint: First, calculate thepartners' bases in their partnership interests after reflecting any gain or loss on disposal of the equipment. Disregard any depreciation inyear 3.) What observations can you make regarding the value of a deduction to each partner?The realized gainon the sale of the equipment is $The partners' bases in their partnership interests after reflecting any gain or loss on disposal of the equipment: Bryan's basis is, and Cody's basis isWhat observations can you make regarding the value of a deduction to each partner?Bryan will receive $46,920 of the sales proceeds.Cody will receive $103,080 of the sales proceeds.Bryan has directly reducedhis right to cash flows on liquidation in favor of current deductions from taxable incomeAbsent the special allocation of depreciation, the parties each would have received $on the distribution of sale proceeds.Therefore, the economic effect rules ensure that a deduction reflects a true economic consequenceto the partner.

A partnership is a form of commercial organization in which two or more people or organizations work…

Bryan and Cody each contributed $120,000 to the newly formed BC Partnership in exchange for a 50% interest. The partnership used the available funds to acquire equipment costing $200,000 and to fund current operating expenses. The partnership agreement provides that depreciation will be allocated 80% to Bryan and 20% to Cody. All other items of income and loss will be allocated equally between the partners. Upon liquidation of the partnership, property will be distributed to the partners in accordance with their § 704(b) book capital account balances. Any partner with a negative capital account must contribute cash in the amount of the negative balance to restore the capital account to $0. In its first year, the partnership reported an ordinary loss (before depreciation) of $80,000 and depreciation expense of $36,000. In its second year, the partnership reported $40,000 of income from operations (before depreciation), and it reported depreciation expense of $57,600. a. Calculate the partners' bases in their partnership interests at the end of the first and second tax years.

Bryan and Cody each contributed $120,000 to the newly formed BC Partnership in exchange for a 50% interest. The partnership used the available funds to acquire equipment costing $200,000 and to fund current operating expenses. The partnership agreement provides that depreciation will be allocated 80% to Bryan and 20% to Cody. All other items of income and loss will be allocated equally between the partners. Upon liquidation of the partnership, property will be distributed to the partners in accordance with their § 704(b) book capital account balances. Any partner with a negative capital account must contribute cash in the amount of the negative balance to restore the capital account to $0. In its first year, the partnership reported an ordinary loss (before depreciation) of $80,000 and depreciation expense of $36,000. In its second year, the partnership reported $40,000 of income from operations (before depreciation), and it reported depreciation expense of $57,600. a. Calculate the partners' bases in their partnership interests at the end of the first and second tax years.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

A and B form the equal AB partnership on January 1 of Year 1. A contributes equipment with a tax basis of $8,000 and a fair market value of $20,000. The equipment has been on a 10-year recovery period and has four years remaining. (Were the equipment newly acquired at the time fo the contribution to the partnership, the recovery period would again be 10 years.) B contributes $20,000, which the partnership uses to buy land. The partnership's income equals expenses except for depreciation deductions. Assuming the partnership uses the remedial allocation method, describe how depreciation deductions will be allocated to A and B from the equipment. Ignore any applicable first year depreciation conventions.
In 2021, Autumn Partnership distributes the following assets to Spring Dupont (a partner in the partnership) in a proportionate, liquidating distribution: • Office furnishing (fair market value of $100,000 and basis to partnership of $30,000) • $40,000 of cash • Inventory (fair market value of $100,000 and basis to partnership of $20,000) Prior to the distribution Spring Dupont had an outside basis in the Autumn Partnership of $200,000 How much gain or loss will Spring Dupont recognize from this distribution? How much gain of loss will Autumn Partnership recognize from this distribution? XWhat is Spring Dupont's basis in the office furnishings? What is Spring Dupont's basis in the inventory? dWhat is Spring Dupont's outside basis in the partnership following the distribution? How would your answers to the above questions change if the distribution were a non- liquidating distribution?
AB Corporation and YZ Corporation formed a partnership to construct a shopping mall. AB contributed $510,000 cash, and YZ contributed land ($510,000 FMV and $440,000 basis) in exchange for a 50 percent interest in ABYZ Partnership. Immediately after its formation, ABYZ borrowed $255,000 from a local bank. The debt is recourse (unsecured by any specific partnership asset). Required: a. Compute each partner's initial basis in its partnership interest, assuming that both AB and YZ are general partners. b. Compute each partner's initial basis in its partnership interest, assuming that AB is a general partner, and YZ is a limited partner. Complete this question by entering your answers in the tabs below. Required A Required B Compute each partner's initial basis in its partnership interest, assuming that AB is a general partner, and YZ is a limited partner. AB's initial basis YZ's initial basis Amount
When Abe's outside basis in the Vacuna Partnership is $211,000, the partnership distributes to him $36,000 cash, three accounts receivable (fair market value of $61,000, inside basis to the partnership of $0), and a parcel of land (fair market value of $484,000, inside basis to the partnership of $420,000). Abe remains a partner in the partnership, and the distribution is proportionate to the partners. If an amount is zero, enter "0". a. Does the partnership recognize a gain or loss as a result of this distribution? (gain, loss, no gain or loss) b. As a result of the distribution, Abe recognizes .(a gain, a loss, neither a gain or loss) c. In what order are the assets distributed to Abe? (land, accounts receivable, cash) Calculate Abe's basis in the land, in the accounts receivable, and in his partnership interest immediately following the distribution.Accounts receivable: Land: Partnership interest:
UU,VV and WW were partners with capital balances on January 2, 2021 of P700,000, P840,000and 620,000 respectively. Their profit and loss ratio is 3:5:2. On August 1, 2021, UU retires form thepartnership. On the date of retirement, the partnership net loss is P480,000 and the partners agreedthat inventories are to be revalued at P370,000 from its original cost of P340,000. The partnersagreed further to pay UU P568,500 in settlement of his interest. Upon retirement of UU, which of thefollowing will result? a, Bonus to VV is P2,500b. Bonus from WW is P1,000c. Goodwill of UU is P3,500d. VVs capital after retirement of UU is P85,000 higher that WW
Andy has an outside basis in Canine Partnership of $520,000. The partnership distributes the following assets to Andy in a proportionate, non-liquidating distribution: Land (fair market value of $6000,000 and basis to partnership of $240,000 Cash of $100,000 Accounts receivable (fair market value of $200,000 and basis of $0) How much gain of loss will Canine Partnership recognize from this distribution?
Bryan and Cody each contributed $120,000 to the newly formed BC Partnership in exchange for a 50% interest. The partnership used the available funds to acquire equipment costing $200,000 and to fund current operating expenses. The partnership agreement provides that depreciation will be allocated 80% to Bryan and 20% to Cody. All other items of income and loss will be allocated equally between the partners.Upon liquidation of the partnership, property will be distributed to the partners in accordance with their § 704(b) book capital account balances. Any partner with a negative capital account must contribute cash in the amount of the negative balance to restore the capital account to $0. In its first year, the partnership reported an ordinary loss (before depreciation) of $80,000 and depreciation expense of $36,000. In its second year, the partnership reported $40,000 of income from operations (before depreciation), and it reported depreciation expense of $57,600. a. Calculate the…
Queso and Royal formed a partnership and named it Queso Royal. Queso, formerly a sole proprietor has assets with book value of P 300,000 and liabilities with book value of P 70,000. The partnership decided to carry the assets of Queso at 110% of its book value and that Queso should also recognize additional liabilities of P 10,000. Queso’s adjusted net assets are equivalent to 2/3 of the partnership’s net assets. How much is the capital balance of Royal immediately upon formation? Group of answer choices P 125,000 P 75,000 P 100,000 P 150,000
A, B and C decided to form ABC Partnership on January 1, 2022.. . It was agreed that A will contribute an equipment with historical cost of P800,000 and accumulated depreciation of P500,000. On the date of formation, the fair value of equipment was P400,000. B will contribute an automobile with carrying amount of P1,200,000 and fair value of P1,500,000. The automobile is subject to a loan payable amounting to P300,000 to be assumed by the partnership. The partners agreed that C will have to contribute cash equal to half of B's capital. Compute the total capital of the partnership.
Georgia's Interest in the equal GFH Partnership is liquidated when the GFH Partnership makes a Liquidating Distribution to Georgia and the remaining Partners assume Georgia's share of the Partnership Liabilities. Georgia receives $12,000 in Cash, Accounts Receivable of $21,000 (Fair Market Value) and Equipment worth (Fair Market Value) of $47,000. On the date of the Liquidation, the Partnership's Cash Basis Balance Sheet reflected the following: Cash (Adjusted Basis- $60,000; Fair Market Value - $60,000); Unrealized Receivable (Adjusted Basis-S-0-; Fair Market Value - $63,000); Equipment (Adjusted Basis- $72,000; Fair Market Value - $141,000) (Total Assets: Adjusted Basis- $132,000; Fair Market Value - $264,000); Notes Payable (Adjusted Basis - $24,000; Fair Market Value - $24,000); Capital Accounts: Georgia Capital (Adjusted Basis - $36,000, Fair Market Value - $80,000); Freddie Capital (Adjusted Basis- $36,000; Fair Market Value - $80,000); Helen Capital (Adjusted Basis- $36,000;…