Dave La Croix recently received a 10 percent capital and profits interest in Cirque Capital LLC in exchange for consulting services he provided. If Cirque Capital had paid an outsider to provide the advice, it would have deducted the payment as compensation expense. Cirque Capital's balance sheet on the day Dave received his capital interest appears below: Assets: Cash Investments Land Totals Liabilities and capital: Nonrecourse liabilities Tatsuki* Robert* Totals Basis $ 150,000 200,000 150,000 $ 500,000 $ 100,000 200,000 200,000 $ 500,000 Fair Market Value $ 150,000 700,000 250,000 $ 1,100,000 $ 100,000 500,000 500,000 $ 1,100,000 *Assume that Tatsuki's basis and Robert's basis in their LLC interests equal their tax basis capital accounts plus their respective shares of nonrecourse liabilities. Note: Leave no answer blank. Enter zero if applicable. d. Compute and characterize any gain or loss Dave may have to recognize as a result of his admission to Cirque Capital if he receives only a profits interest.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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[The following information applies to the questions displayed below.]
Dave LaCroix recently received a 10 percent capital and profits interest in Cirque Capital LLC in exchange for consulting
services he provided. If Cirque Capital had paid an outsider to provide the advice, it would have deducted the payment as
compensation expense. Cirque Capital's balance sheet on the day Dave received his capital interest appears below:
Assets:
Cash
Investments
Land
cama
Totals
Liabilities and capital:
Nonrecourse liabilities
Tatsuki*
Robert*
Totals
Basis
Gain or loss recognized
$ 150,000
200,000
150,000
$ 500,000
as
$ 100,000
200,000
200,000
$500,000
Fair Market
Value
$ 150,000
700,000
250,000
$1,100,000
*Assume that Tatsuki's basis and Robert's basis in their LLC interests equal their tax basis capital accounts plus their
respective shares of nonrecourse liabilities.
Note: Leave no answer blank. Enter zero if applicable.
$ 100,000
500,000
500,000
$ 1,100,000
d. Compute and characterize any gain or loss Dave may have to recognize as a result of his admission to Cirque Capital if he receives
only a profits interest.
Transcribed Image Text:Required information [The following information applies to the questions displayed below.] Dave LaCroix recently received a 10 percent capital and profits interest in Cirque Capital LLC in exchange for consulting services he provided. If Cirque Capital had paid an outsider to provide the advice, it would have deducted the payment as compensation expense. Cirque Capital's balance sheet on the day Dave received his capital interest appears below: Assets: Cash Investments Land cama Totals Liabilities and capital: Nonrecourse liabilities Tatsuki* Robert* Totals Basis Gain or loss recognized $ 150,000 200,000 150,000 $ 500,000 as $ 100,000 200,000 200,000 $500,000 Fair Market Value $ 150,000 700,000 250,000 $1,100,000 *Assume that Tatsuki's basis and Robert's basis in their LLC interests equal their tax basis capital accounts plus their respective shares of nonrecourse liabilities. Note: Leave no answer blank. Enter zero if applicable. $ 100,000 500,000 500,000 $ 1,100,000 d. Compute and characterize any gain or loss Dave may have to recognize as a result of his admission to Cirque Capital if he receives only a profits interest.
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