29. On January 1, 2015, Kelly became a 10 percent partner of the Realty Partners

Question

29. On January 1, 2015, Kelly became a 10 percent partner of the Realty Partnership upon contributing land he had held as an investment for five years. The basis of the land to Kelley was $200,000, but its fair market value at the time of the contribution was only $100,000. Assume that after much advertising, Realty partnership was able to sell the property for $120,000 on December 31, 2015. How much, if any, loss is recognized by Realty Partnership on the sale and what is its character? Would your answer be different if the sale took place on January 2, 2020?

Explanation / Answer

1. Even if it is $200000 for Kelly, on the date of contribution lands fair market value was only $100000.Hence Realty partnership considers the contributed land value as $100000 only in its books.

2.On december 31st it sold for $120000 after much advertising,here the amount expended for advertising has not mentioned.So without deducting any advertising charges from the sale value there has been no loss incurred to Realty Partnership as on 31st december,2015.

3. If the sale took place on January 2,2020 the Fair market value of the land on that prevailing date i.e., on January 2,2020 is to be considered and compared with the sale value of the property to obtain and recognise loss incurred or gain earned.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.