Chapter 21 Solutions - PROBLEMS 26 a b c d Under 721...

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PROBLEMS 26. a. Under § 721, neither the partnership nor the partners recognizes any gain on formation of the entity. b. Chip will take a cash basis of $200,000 in his partnership interest. c. Marty will take a substituted basis of $100,000 in his partnership interest ($100,000 basis in the property contributed to the entity). d. The partnership will take a carryover basis in the assets it receives ($200,000 basis in cash, and $100,000 basis in property). Example 14 27. a. Liz has a realized loss of $15,000. However, § 721 contains the general rule that no gain or loss is recognized to a partnership or any of its partners upon the contribution of money or other property in exchange for a capital interest. Since Liz is subject to this rule, she does not recognize the loss. p. 21-10 b. $60,000. Section 722 provides that the basis of a partner’s interest acquired by a contribution of property, including money, is the amount of such money and the adjusted basis of such property to the contributing partner at the time of the contribution. p. 21-12 c. $75,000, the adjusted basis of the contributed property (§ 722). p. 21-12 d. $75,000. Under § 723, the basis of property to the entity is the adjusted basis of such property to the contributing partner at the time of the contribution, increased by any § 721(b) gain recognized by such partner. Since no such gain (and no loss) was recognized by Liz on the contribution, the partnership takes a carryover basis in the property. Example 14 e. A more efficient tax result may arise if Liz sells the property to an unrelated party for $60,000, recognizes the $15,000 loss on the property, and contributes $60,000 cash to the partnership. The partnership could then use the $60,000 to acquire similar property, in which it would take a $60,000 basis. Example 9 28. a. Carol realizes a gain of $20,000 on contribution of the land. Connie realizes a gain of $60,000 on contribution of the equipment. The partnership realizes a gain equal to the value of the property it receives (it has a $0 basis in the partnership interests it issues). b. Under § 721, neither the partnership nor either of the partners recognizes any gain on formation of the entity. Example 8 c. Carol will take a substituted basis of $70,000 in her partnership interest ($30,000 cash plus $40,000 basis in land). Connie will take a substituted basis of $30,000 in her partnership interest ($30,000 basis in the equipment). Example 14
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d. The partnership will take a carryover basis in all the assets it receives ($30,000 basis in cash, $40,000 basis in land, and $30,000 basis in equipment). p. 21-12 e. The partners’ outside bases in their partnership interests total $100,000: Carol’s basis of $70,000 plus Connie’s basis of $30,000. This is the same as the partnership’s basis in assets of $100,000 ($30,000 cash plus $40,000 land plus $30,000 equipment). p. 21-12 f. The partnership will ‘‘step into Connie’s shoes” in determining its depreciation expense. It will use the remaining depreciable life and the
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This note was uploaded on 04/11/2011 for the course ACCT 422 taught by Professor Poliski during the Spring '11 term at Lake Superior State University.

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Chapter 21 Solutions - PROBLEMS 26 a b c d Under 721...

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