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General Partnership to create fruit candies. Befo heir own sole proprietorship. The partners cont worth $3,000 net of liabilities) in exchange for e apital, profits and losses (see the table below o artnership assumes all liabilities encumbering t artners are responsible for an equal share of th

General Partnership to create fruit candies. Befo heir own sole proprietorship. The partners cont worth $3,000 net of liabilities) in exchange for e apital, profits and losses (see the table below o artnership assumes all liabilities encumbering t artners are responsible for an equal share of th

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Lemon, Lime, and Orange, three cash method, calendar year individuals, form Starburst General Partnership to create fruit candies. Before forming this partnership, they each had their own sole proprietorship. The partners contribute the following property (in each case worth $3,000 net of liabilities) in exchange for equal 1/3 interests in the partnership's capital, profits and losses (see the table below of property contributed by each partner). The partnership assumes all liabilities encumbering the contributed assets. Assume that the partners are responsible for an equal share of the partnership's liabilities. What is the most that any specific partner recognizes on these transactions? • Lemon contributes land with a fair market value of $6,450, which is encumbered by a recourse mortgage of $4,050. Lemon has held the land for several years as an investment, and his basis in the land is $1,500. Lemon also contributes $600 in cash. • Lime contributes a building, a § 1231 asset, with a value of $3,900 in which Lime has an adjusted basis of $1,950. The building was purchased several years ago by Lime and is subject to a recourse mortgage $900. • Orange contributes zero basis accounts receivable from his business worth $5,250 and assigns his accounts payable of $2,250 to the partnership. $1,500 $900 $300 $0
Transcribed Image Text:Lemon, Lime, and Orange, three cash method, calendar year individuals, form Starburst General Partnership to create fruit candies. Before forming this partnership, they each had their own sole proprietorship. The partners contribute the following property (in each case worth $3,000 net of liabilities) in exchange for equal 1/3 interests in the partnership's capital, profits and losses (see the table below of property contributed by each partner). The partnership assumes all liabilities encumbering the contributed assets. Assume that the partners are responsible for an equal share of the partnership's liabilities. What is the most that any specific partner recognizes on these transactions? • Lemon contributes land with a fair market value of $6,450, which is encumbered by a recourse mortgage of $4,050. Lemon has held the land for several years as an investment, and his basis in the land is $1,500. Lemon also contributes $600 in cash. • Lime contributes a building, a § 1231 asset, with a value of $3,900 in which Lime has an adjusted basis of $1,950. The building was purchased several years ago by Lime and is subject to a recourse mortgage $900. • Orange contributes zero basis accounts receivable from his business worth $5,250 and assigns his accounts payable of $2,250 to the partnership. $1,500 $900 $300 $0
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