The Taurin Partnership (calendar year-end) has the following assets as of Decemb
ID: 2564025 • Letter: T
Question
The Taurin Partnership (calendar year-end) has the following assets as of December 31 of the current year:
On December 31, Taurin distributes $15,320 of cash, $10,213 (FMV) of accounts receivable, and $40,560 (FMV) of inventory to Emma (a one-third partner) in termination of her partnership interest. Emma’s basis in her partnership interest immediately prior to the distribution is $40,707. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)
b. What is Emma’s basis in the distributed assets?
c1. If Emma’s basis before the distribution was $56,007 rather than $40,707, what is Emma’s recognized gain or loss?
c2. What is her basis in the distributed assets?
Cash ____
Accounts Rec. ______
Inventory _______
Cash ___________
Accounts Rec. ____________
Inventory ____________
Tax Basis FMV Cash $ 45,960 $ 45,960 Accounts receivable 15,320 30,640 Inventory 82,200 121,680 Totals $ 143,480 $ 198,280Explanation / Answer
Because Taurin distributes only cash, accounts receivable, and inventory, and the adjusted bases of the property distributed is less than her basis in the partnership, Emma will simply reduce the basis of the hot assets. Emma uses a three step process to allocate her basis to the distributed property. 1.Emma assigns a basis of $15320 (1/3of 45960)to the cash, $5,107(1/3 of15320) to the accounts receivable and $27,400(1/3of82200) to the inventory. Since the sum (47827) exceeds her basis in Taurin, she has a required decrease of $7120(47827-40707)
Emma decreases the basis of the asset in proportion to their relative adjusted basis.
Account receivable: Basic allocation =7120*(5107/30,640)= $ 1186.74
Inventory = Basic allocation =7120*(27,400/30,640) = $6,367.
After completing the allocation Emma basis in the distributed asset are
Cash = $ 15320
Account receivable (5107-1186.74)=3920.26
Inventory =(27400-6367)= 21033
If Emma basic allocation 56,007 rather than 40707she recognise a capital loss on the distribution.Emma calculate her loss of as the difference between her basis in her partnership interest (56,007) and the sum of adjusted bases(47,827)=8180
Her basis in distributed asset is equal to partnership basis in assets.
Cash =,15,320
Account receivable = 5,107
Inventory =27,400
The carryover bases allow Emma to retain the characters of the inherent gains in the account receivable in the liquidating distribution.
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