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bala
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| Posted: 06 Jun 2009 at 23:17 | IP Logged
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The personal service partnership of Allen, Baker & Carr had the following cash basis balance sheet at December 31, 1989:
Assets
Adjusted
basis & nbsp; Market
per books value
Cash $102,000 $102,000
Unrealized accounts
receivable - 420,000
Totals $102,000 $522,000
Liability and Capital
Note payable $ 60,000 $ 60,000
Capital accounts:
Allen 14,000 154,000
Baker 14,000 154,000
Carr 14,000 154,000
Totals $102,000 $522,000
Carr, an equal partner, sold his partnership interest to Dole, an outsider, for $154,000 cash on January 1, 1990. In addition, Dole assumed Carr's share of the partnership's liability.
What amount of ordinary income should Carr report in his 1990 income tax return on the sale of his partnership interest?
ans is $140000. how? can someone please help me understand this?
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Jams
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| Posted: 06 Jun 2009 at 23:45 | IP Logged
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there are 2 ways to solve this
you must be aware that when you sell "hot assets", which is inventory or A/R is taxed as ordinary income, so in this case partners share of A/R is ordinary income. 420,000/3=140,000.
Also, other way is,
compare what you got to what you are giving.
154,000+20,000(your share of liabilities assumed)=174,000
-your capital account+your share of liability=14,000+20,000=34,000.
174,000-34,000=140,000.
i hope this helps.
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jams
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bala
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| Posted: 07 Jun 2009 at 00:37 | IP Logged
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Thank you so much Jams! your explanation is far better than Becker, simple and easy to understand. i was aware of the 'hot asset" rule but somehow missed it out while solving. Thanks once again for your help!
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Jams
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| Posted: 07 Jun 2009 at 08:32 | IP Logged
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bala, it happened with me as well, i knew the rule, but simply got lost in transition. there are so many numbers in this problem, which makes it difficult, i couldn't catch up on this till "yaeger" explained it so well. thanks phil.
i don't know when r u giving the exams, but wish u good luck.
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jams
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bala
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| Posted: 07 Jun 2009 at 23:03 | IP Logged
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i guess it would have been better if Becker gave more eg: so that the concept would stick to mind! most of the time i understand things better while solving mcqs. do u suggest practicing qns outside Becker? any guidance is highly appreciated. Thank you so much for the wishes!
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Topic: Saleof partnership interest
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