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 $3,200 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 $6,880, which is encumbered by a recourse mortgage of $4,320. Lemon has held the land for several years as an investment, and his basis in the land is $1,600. Lemon also contributes $640 in cash. • Lime contributes a building, a § 1231 asset, with a value of $4,160 in which Lime has an adjusted basis of $2,080. The building was purchased several years ago by Lime and is subject to a recourse mortgage $960. • Orange contributes zero basis accounts receivable from his business worth $5,600 and assigns his accounts payable of $2,400 to the partnership.
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 $3,200 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 $6,880, which is encumbered by a recourse mortgage of $4,320. Lemon has held the land for several years as an investment, and his basis in the land is $1,600. Lemon also contributes $640 in cash. • Lime contributes a building, a § 1231 asset, with a value of $4,160 in which Lime has an adjusted basis of $2,080. The building was purchased several years ago by Lime and is subject to a recourse mortgage $960. • Orange contributes zero basis accounts receivable from his business worth $5,600 and assigns his accounts payable of $2,400 to the partnership.
Chapter21: Partnerships
Section: Chapter Questions
Problem 22CE
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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 $3,200 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 $6,880, which is encumbered
by a recourse mortgage of $4,320. Lemon has held the land for several years as
an investment, and his basis in the land is $1,600. Lemon also contributes $640
in cash.
• Lime contributes a building, a § 1231 asset, with a value of $4,160 in which Lime
has an adjusted basis of $2,080. The building was purchased several years ago
by Lime and is subject to a recourse mortgage $960.
• Orange contributes zero basis accounts receivable from his business worth
$5,600 and assigns his accounts payable of $2,400 to the partnership.
$1,600
$960
$0
$320
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