Formation of a partnership. Suzanne and Bob form the SB General Partnership as e
ID: 2451991 • Letter: F
Question
Formation of a partnership. Suzanne and Bob form the SB General Partnership as equal partners. They make the following contributions:
Individual
Asset
Basis to partner
FMV
Suzanne
Cash
$45,000
$45,000
Inventory (securities)
14,000
15,000
Bob
Land
45,000
40,000
Building
50,000
100,000
The SB Partnership assumes the $80,000 recourse mortgage on the building that Bob contributes, and the partners share the economic risk of loss on the mortgage equally. Bob has claimed $40,000 in straight-line depreciation under the MACRS rules on the building. Suzanne is a stockbroker and contributed securities from her inventory. The partnership will hold them as an investment.
What amount and character of gain or loss must each partner recognize on the formation of the partnership?
What is each partner's basis in his or her partnership interest?
What is the partnership's basis in each asset?
What is the partnership's initial book value of each asset?
The partnership holds the securities for two years and then sells them for $20,000. What amount and character of gain must be partnership and each partner report?
Individual
Asset
Basis to partner
FMV
Suzanne
Cash
$45,000
$45,000
Inventory (securities)
14,000
15,000
Bob
Land
45,000
40,000
Building
50,000
100,000
Explanation / Answer
1 What amount and character of gain or loss must each partner recognize on the formation of the partnership? Particulars Suzzane -Gain (Loss) Bob-Gain /(Loss) Type Cash 0 Inventory 1000 Unrealised Gain Land -5000 Unrealised Loss Building 10000 (60000-50000) Unrealised Gain Total 1000 5000 Building FMV is taken as 60000 as 100000 is the FMV and It will be recognised in Books at 60000 as Depreciation of 40000 has been claimed in the past. 2 What is each partner's basis in his or her partnership interest? Particulars Suzzane Bob Cash 45000 Inventory 14000 Land 45000 Building 50000 Mortgage -40000 -40000 Total 19000 55000 3 What is the partnership's basis in each asset? Particulars Suzzane Bob Cash 45000 Inventory 15000 Land 40000 Building 100000 Mortgage -40000 -40000 Total 20000 100000 4 What is the partnership's initial book value of each asset? Particulars Book Value at FMV Cash 45000 Inventory 15000 Land 40000 Building 60000 Taken at Net Value after claiming Depreciation under MARCS Mortgage -80000 Total 80000 5 The partnership holds the securities for two years and then sells them for $20,000. What amount and character of gain must be partnership and each partner report? Partnership Report Particulars Amount Selling Value 20000 Less: Book Value -15000 Net Gain(Business Gain) 5000 Partner Report Particulars Suzzane Bob Distribution of Sale Proceeds 10000 10000 Less: Partners Outside Share in Asset 3594.594595 10405.40541 14000*(19000/74000) 14000*(55000/74000) Capital Gain/(Loss) 6405.405405 -405.4054054
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