Chapter 11 partnerships distributions transfer of

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Chapter 12 / Exercise 12-16
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Chapter 11: Partnerships: Distributions, Transfer of Interests, and Terminations 66. Last year, Darby contributed land (basis of $60,000, fair market value of $80,000) to the Seagull LLC in exchange for a 25% interest in the LLC. In the current year, the LLC distributes the land (now worth $82,000) to Shelby, who is also a 25% owner. Immediately prior to the distribution, Darby’s basis in the LLC was $70,000, while Shelby’s basis in the LLC was $110,000. How much gain or loss must be recognized and by whom? What is Shelby’s basis in the property she receives and Darby’s basis in her partnership interest following the distribution? a. No gain or loss; Shelby’s basis in the property is $80,000; Darby’s basis in interest is $70,000. b. $20,000 gain recognized by Darby; Shelby’s basis in the property is $80,000; Darby’s basis in interest is $90,000. c. $22,000 gain recognized by Darby; Shelby’s basis in the property is $82,000; Darby’s basis in interest is $92,000. d. $20,000 gain recognized by Shelby; Shelby’s basis in the property is $80,000; Darby’s basis in interest is $90,000. e. $22,000 gain recognized by Shelby; Shelby’s basis in the property is $82,000; Darby’s basis in interest is $92,000. ANSWER: b RATIONALE: Darby recognizes the precontribution gain when the property is distributed to Shelby. The amount of gain she recognizes is limited to the $20,000 precontribution gain at the contribution date. Darby’s basis in the LLC is increased by her $20,000 recognized gain, to $90,000. When Shelby receives the property, her basis in the property is increased to $80,000 by the $20,000 of gain recognized by Darby. Shelby’s basis in the partnership interest is reduced by the $80,000 basis of the distributed property. In this case, Darby recognizes a gain of $20,000, so Shelby increases her basis in the property from $60,000 to $80,000.
67. Last year, Miguel contributed nondepreciable property with a basis of $50,000 and a fair market value of $75,000 to the Starling Partnership in exchange for a 25% interest in the partnership. In the current year, he receives a nonliquidating distribution from the partnership of other property with a basis to the partnership of $50,000 and a fair market value of $62,000. The basis in his partnership interest at the time of the distribution was $60,000. How much gain or loss does Miguel recognize on the distribution? (Assume no other distributions have been made to Miguel, the property he originally contributed is still owned by the partnership, and this is not a disguised sale transaction.)
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Accounting Using Excel for Success
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Chapter 12 / Exercise 12-16
Accounting Using Excel for Success
Reeve/Warren
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Chapter 11: Partnerships: Distributions, Transfer of Interests, and Terminations

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