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Exam 16: Dispositions of Partnership Interests and Partnership Distributions

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Question 41

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Marty is a 40 percent owner of MB Partnership.Marty has decided to sell his interest in the business to Emilio for $100,000 cash plus the assumption of his share of MB's liabilities.Assume Marty's inside and outside basis in MB are equal.MB shows the following balance sheet as of the sale date: $\begin{array}{llll}\text {Assest} & \text { Basis } &\text { FMV } \\ \text { Cash } &\$160,000&\$160,000\\ \text {Receivables } &50,000&50,000\\ \text {Inveritory } &80,000&170,000\\ \text {Land held for investment } &\underline{60,000}&\underline{40,000}\\\text {Totals}&\underline{\$350,000}&\underline{\$420000}\end{array}$ $\begin{array}{llll} \text {Loiabilities ard capital: } & \\ \text { Iuiabilities} &&\$120,000\\ \text { Capital} &\text { -Marty}&92,000\\& \text { -Bary} &\underline{138,000}\\ \text { Totals} &&\underline{\$350,000}\\\end{array}$ What is the amount and character of Marty's recognized gain or loss?

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$28,000 capital loss and $36,000 ordinar...

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Question 42

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Under which of the following circumstances will a partner recognize a loss from an operating distribution?

A) A partner will never recognize a loss from an operating distribution.
B) A partner will recognize a loss from an operating distribution when the partnership distributes property other than money with an inside basis greater than the partner's basis in the partnership interest.
C) A partner will recognize a loss from an operating distribution when the partnership distributes money in an amount that is less than the partner's basis in the partnership interest.
D) A partner will recognize a loss from an operating distribution when the partnership distributes money in an amount that is greater than the partner's basis in the partnership interest.

E) A) and B)
F) C) and D)

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Question 43

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Kristen and Harrison are equal partners in the KH Partnership.The partners formed the partnership five years ago by contributing cash.Prior to any distributions Harrison has a basis in his partnership interest of $44,000.On December 31, KH makes a proportionate operating distribution of $50,000 cash to Harrison.What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH?

Randolph is a 30 percent partner in the RD Partnership.On January 1, RD distributes $15,000 cash and inventory with a fair value of $20,000 (inside basis of $10,000) to Randolph in complete liquidation of his interest.RD has no liabilities at the date of the distribution.Randolph's basis in his RD Partnership interest is $27,000.What is the amount and character of Randolph's gain or loss on the distribution?

Ted is a 30 percent partner in the TDW Partnership, with an outside basis of $20,000.TDW distributes $15,000 of cash in complete liquidation of Ted's interest.Ted recognizes a capital loss of $5,000 on the distribution.

Jessica is a 25 percent partner in the JRL Partnership.On January 1, JRL distributes $40,000 cash to Jessica.JRL has no hot assets or liabilities at the date of the distribution.Jessica's basis in her JRL partnership interest is $28,000.What is the amount and character of Jessica's gain or loss from the distribution?

Barry has a basis in his partnership interest of $50,000 when the partnership distributes $60,000 in cash to Barry.As a result of the distribution, Barry reduces his basis in the partnership interest to $0, has a $60,000 basis in the cash received, and recognizes a gain of $10,000 on the distribution.

A partner that receives cash in an operating distribution recognizes gain if the cash distributed exceeds the partner's outside basis in the partnership immediately before the distribution.

Victor is a one-third partner in the VRX Partnership, with an outside basis of $156,000 on January 1.Victor sells his partnership interest to Raj on January 1 for $200,000 cash.The VRX Partnership has the following assets and no liabilities as of January 1: Cash Accourts receivable $\begin{array}{llll} & \text { Basis } &\text { FMV } \\ \text { Cash } &\$27,000&\$27,000\\ \text {Accourts receivable } &-0-&18,000\\ \text {Inveritory } &103,500&121,500\\ \text { Equipment } &270,000&337,500\\ \text {Stock irvestrnent } &\underline{67,500}&\underline{62,500}\\\text {Totals}&\underline{\$468,000}&\underline{\$566,500}\end{array}$ The equipment was purchased for $360,000 and the partnership has taken $90,000 of depreciation.The stock was purchased seven years ago.What is the amount and character of Victor's gain or loss on the sale of his partnership interest?

Daniela is a 25 percent partner in the JRD Partnership.On January 1, JRD makes a proportionate distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000) , and accounts receivable with a fair value of $8,000 (inside basis of $12,000) to Daniela.JRD has no liabilities at the date of the distribution.Daniela's basis in her JRD Partnership interest is $20,000.What is Daniela's basis in the distributed inventory and accounts receivable?

Martha is a 40 percent partner in the MMM Partnership, with an outside basis of $50,000.MMM distributes $40,000 cash and accrual-basis accounts receivable with a basis and fair market value of $20,000.Martha does not recognize gain or loss on the distribution and takes a basis in the cash of $40,000 and a basis in the receivables of $10,000.

The VRX Partnership (a calendar year-end entity)has the following assets and no liabilities: $\begin{array}{llll} & \text { Basis } &\text { FMV } \\ \text { Cash } &\$27,000&\$27,000\\ \text {Accourts receivable } &-0-&18,000\\ \text {Inveritory } &103,500&121,500\\ \text { Equipment } &270,000&337,500\\ \text {Stock irvestrnent } &\underline{67,500}&\underline{62,500}\\\text {Totals}&\underline{\$468,000}&\underline{\$566,500}\end{array}$ The equipment was purchased for $360,000 and VRX has taken $90,000 of depreciation.The stock was purchased seven years ago.What are VRX's hot assets for purposes of a sale of partnership interest?

Daniela is a 25 percent partner in the JRD Partnership.On January 1, JRD makes a proportionate distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000) , and accounts receivable with a fair value of $8,000 (inside basis of $0) to Daniela.JRD has no liabilities at the date of the distribution.Daniela's basis in her JRD Partnership interest is $21,000.What is Daniela's basis in the distributed inventory and accounts receivable?

Under which of the following circumstances will a partner recognize a gain from an operating distribution?

Randolph is a 30 percent partner in the RD Partnership.On January 1, RD distributes $15,000 cash, an investment with a fair value of $20,000 (inside basis of $10,000) , and a parcel of land with a fair value of $10,000 (inside basis of $5,000) to Randolph in complete liquidation of his interest.RD has no liabilities at the date of the distribution.Randolph's basis in his RD Partnership interest is $48,000.What is Randolph's basis in the distributed investment and land?

Locke is a 50 percent partner in the LS Partnership.Locke has a basis in his partnership interest of $84,000 at the end of the current year, prior to any distribution.On December 31, Locke receives an operating distribution of $30,000 cash.LS has no debt or hot assets.What is the amount and character of Locke's recognized gain or loss? What is Locke's ending basis in his partnership interest?

In the sale of a partnership interest, a selling partner will recognize ordinary income (rather than capital gain)when the partnership assets include cash and land held for five years as an investment.

Tyson is a 25 percent partner in the KT Partnership.On January 1, KT makes a proportionate distribution of $16,000 cash, inventory with a $10,000 fair value (inside basis $4,000) , land A with a fair value of $8,000 (inside basis of $12,000) , and land B with a fair value of $6,000 (inside basis of $4,000) to Tyson.KT has no liabilities at the date of the distribution.Tyson's basis in his KT Partnership interest is $23,000.What is Tyson's basis in the distributed inventory, land A, and land B?

Daniela is a 25 percent partner in the JRD Partnership.On January 1, JRD makes a proportionate liquidating distribution of $20,000 cash and inventory with a $15,000 fair value (inside basis $5,000) to Daniela.JRD has no liabilities at the date of the distribution.Daniela's basis in her JRD Partnership interest is $21,000.What is the amount and character of Daniela's gain or loss from the distribution?

Brian is a 25 percent partner in the BC Partnership.On January 1, BC distributes $20,000 cash and land with a $16,000 fair value (inside basis $8,000) to Brian.BC has no liabilities at the date of the distribution.Brian's basis in his BC Partnership interest is $16,000.What is the amount and character of Brian's gain or loss on the distribution?