Lawyer recently received a five capital and profits interest in ABC Partnership in exchange for professional services he provided to the partnership. If ABC had paid an outsider to provide these services, the payment would have been deductible as an ordinary and necessary business expense. ABC's balance sheet at the time of the transfer of partnership interest follow. Determine the amount and character of any gain or loss Lawyer must recognize upon receipt of the interest in ABC. ASSETS: Cash Investments TOTAL ASSETS LIABILITIES AND EQUITY: Nonrecourse loan payable Partner capital TOTAL LIABILITIES AND EQUITY 4,500 capital gain No income is recognized 4,500 ordinary income 8,750 capital gain 8,750 ordinary income 100,000 75,000 175,000 85,000 90,000 175,000

Lawyer recently received a five capital and profits interest in ABC Partnership in exchange for professional services he provided to the partnership. If ABC had paid an outsider to provide these services, the payment would have been deductible as an ordinary and necessary business expense. ABC's balance sheet at the time of the transfer of partnership interest follow. Determine the amount and character of any gain or loss Lawyer must recognize upon receipt of the interest in ABC. ASSETS: Cash Investments TOTAL ASSETS LIABILITIES AND EQUITY: Nonrecourse loan payable Partner capital TOTAL LIABILITIES AND EQUITY 4,500 capital gain No income is recognized 4,500 ordinary income 8,750 capital gain 8,750 ordinary income 100,000 75,000 175,000 85,000 90,000 175,000

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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