Homework Help is Here – Start Your Trial Now!
Business
Finance
h-1. If Reed sells his interest in Slicenhook to Indie Ruff, what is Indie's inside basis in Slicenhook? h-2. What effect would a 754 election have on Indie's inside basis?

h-1. If Reed sells his interest in Slicenhook to Indie Ruff, what is Indie's inside basis in Slicenhook? h-2. What effect would a 754 election have on Indie's inside basis?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
See similar textbooks
icon
Related questions
Question
100%

h-1. If Reed sells his interest in Slicenhook to Indie Ruff, what is Indie's inside basis in Slicenhook?

h-2. What effect would a 754 election have on Indie's inside basis?

Sales Cost of goods sold Interest income from tax-exempt bonds Qualified dividend income from stock Operating expenses Depreciation (tax) Equipment Building Interest expense on debt Cash Investment-tax exempts Investment stock Equipment-net of depreciation Building-net of depreciation The operating expenses include a $1,800 trucking fine that one of its drivers incurred for reckless driving and speeding and meals expense of $6,000 (the meals were not provided by a restaurant). Land Total By the end of 2023, Reed has had a falling out with Carrie and Doug and has decided to leave the partnership. He has located a potential buyer for his partnership interest, Indie Ruff. Indie has agreed to purchase Reed's interest in Slicenhook for $730,000 in cash and the assumption of Reed's share of Slicenhook's debt. Carrie and Doug, however, are not certain that admitting Indie to the partnership is such a good idea. They want to consider having Slicenhook liquidate Reed's interest on January 1, 2024. As of January 1, 2024, Slicenhook has the following assets: Tax Basis $ 147,000 30,000 $ 876,800 15,000 45,000 333,000 1,146,000 460,000 $ 2,875,800 Total Cash Investment stock Equipment-$200,000 cost, net of depreciation FMV $ 876,800 18,000 45,000 600,000 1,440,000 $ 1,200,000 420,000 510,000 $ 3,489,800 900 1,500 132,000 177,000 96,000 Carrie and Doug propose that Slicenhook distribute the following to Reed in complete liquidation of his partnership interest: Tax Basis $ 485,000 45,000 111,000 $ 641,000 FMV $ 485,000 45,000 200,000 $ 730,000 Slicenhook has not purchased or sold any equipment since its original purchase just after formation.
Transcribed Image Text:Sales Cost of goods sold Interest income from tax-exempt bonds Qualified dividend income from stock Operating expenses Depreciation (tax) Equipment Building Interest expense on debt Cash Investment-tax exempts Investment stock Equipment-net of depreciation Building-net of depreciation The operating expenses include a $1,800 trucking fine that one of its drivers incurred for reckless driving and speeding and meals expense of $6,000 (the meals were not provided by a restaurant). Land Total By the end of 2023, Reed has had a falling out with Carrie and Doug and has decided to leave the partnership. He has located a potential buyer for his partnership interest, Indie Ruff. Indie has agreed to purchase Reed's interest in Slicenhook for $730,000 in cash and the assumption of Reed's share of Slicenhook's debt. Carrie and Doug, however, are not certain that admitting Indie to the partnership is such a good idea. They want to consider having Slicenhook liquidate Reed's interest on January 1, 2024. As of January 1, 2024, Slicenhook has the following assets: Tax Basis $ 147,000 30,000 $ 876,800 15,000 45,000 333,000 1,146,000 460,000 $ 2,875,800 Total Cash Investment stock Equipment-$200,000 cost, net of depreciation FMV $ 876,800 18,000 45,000 600,000 1,440,000 $ 1,200,000 420,000 510,000 $ 3,489,800 900 1,500 132,000 177,000 96,000 Carrie and Doug propose that Slicenhook distribute the following to Reed in complete liquidation of his partnership interest: Tax Basis $ 485,000 45,000 111,000 $ 641,000 FMV $ 485,000 45,000 200,000 $ 730,000 Slicenhook has not purchased or sold any equipment since its original purchase just after formation.
Carrie D'Lake, Reed A. Green, and Doug A. Divot share a passion for golf and decide to go into the golf club manufacturing business together. On January 2, 2022, D'Lake, Green, and Divot form the Slicenhook Partnership, a general partnership. Slicenhook's main product will be a perimeter-weighted titanium driver with a patented graphite shaft. All three partners plan to actively participate in the business. The partners contribute the following property to form Slicenhook: Partner Carrie D'Lake Reed A. Green Doug A. Divot Contribution Land, FMV Basis $460,000, Mortgage Cash Cash Carrie had recently acquired the land with the idea that she would contribute it to the newly formed partnership. The partners agree to share in profits and losses equally. Slicenhook elects a calendar year-end and the accrual method of accounting. Sales Cost of goods sold $ 460,000 $ 60,000 $ 400,000 $ 400,000 In addition, Slicenhook received a $1,500,000 recourse loan from Big Bank at the time the contributions were made. Slicenhook uses the proceeds from the loan and the cash contributions to build a state-of-the-art manufacturing facility ($1,200,000), purchase equipment ($600,000), and produce inventory ($400,000). With the remaining cash, Slicenhook invests $45,000 in the stock of a privately owned graphite research company and retains $55,000 as working cash. Slicenhook operates on a just-in-time inventory system so it sells all inventory and collects all sales immediately. That means that at the end of the year, Slicenhook does not carry any inventory or accounts receivable balances. During 2022, Slicenhook has the following operating results: Interest income from tax-exempt bonds Qualified dividend income from stock Operating expenses Depreciation (tax) §179 on equipment Equipment Building Interest expense on debt $ 39,000 81,000 24,000 $ 1,126,000 400,000 900 1,500 126,000 144,000 120,000 The partnership is very successful in its first year. The success allows Slicenhook to use excess cash from operations to purchase $15,000 of tax-exempt bonds (you can see the interest income already reflected in the operating results). The partnership also makes a principal payment on its loan from Big Bank in the amount of $300,000 and a distribution of $100,000 to each of the partners on December 31, 2022. The partnership continues its success in 2023 with the following operating results:
Transcribed Image Text:Carrie D'Lake, Reed A. Green, and Doug A. Divot share a passion for golf and decide to go into the golf club manufacturing business together. On January 2, 2022, D'Lake, Green, and Divot form the Slicenhook Partnership, a general partnership. Slicenhook's main product will be a perimeter-weighted titanium driver with a patented graphite shaft. All three partners plan to actively participate in the business. The partners contribute the following property to form Slicenhook: Partner Carrie D'Lake Reed A. Green Doug A. Divot Contribution Land, FMV Basis $460,000, Mortgage Cash Cash Carrie had recently acquired the land with the idea that she would contribute it to the newly formed partnership. The partners agree to share in profits and losses equally. Slicenhook elects a calendar year-end and the accrual method of accounting. Sales Cost of goods sold $ 460,000 $ 60,000 $ 400,000 $ 400,000 In addition, Slicenhook received a $1,500,000 recourse loan from Big Bank at the time the contributions were made. Slicenhook uses the proceeds from the loan and the cash contributions to build a state-of-the-art manufacturing facility ($1,200,000), purchase equipment ($600,000), and produce inventory ($400,000). With the remaining cash, Slicenhook invests $45,000 in the stock of a privately owned graphite research company and retains $55,000 as working cash. Slicenhook operates on a just-in-time inventory system so it sells all inventory and collects all sales immediately. That means that at the end of the year, Slicenhook does not carry any inventory or accounts receivable balances. During 2022, Slicenhook has the following operating results: Interest income from tax-exempt bonds Qualified dividend income from stock Operating expenses Depreciation (tax) §179 on equipment Equipment Building Interest expense on debt $ 39,000 81,000 24,000 $ 1,126,000 400,000 900 1,500 126,000 144,000 120,000 The partnership is very successful in its first year. The success allows Slicenhook to use excess cash from operations to purchase $15,000 of tax-exempt bonds (you can see the interest income already reflected in the operating results). The partnership also makes a principal payment on its loan from Big Bank in the amount of $300,000 and a distribution of $100,000 to each of the partners on December 31, 2022. The partnership continues its success in 2023 with the following operating results:
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS