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On January 2 of the current year, Fenton and Myers form the FM LLC. Their contributions to the From Fenton: Cash Accounts receivable Inventory Adjusted Basis $165,000 0 82,500 Fair Market Value $165,000 297,000 206,250

On January 2 of the current year, Fenton and Myers form the FM LLC. Their contributions to the From Fenton: Cash Accounts receivable Inventory Adjusted Basis $165,000 0 82,500 Fair Market Value $165,000 297,000 206,250

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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On January 2 of the current year, Fenton and Myers form the FM LLC. Their contributions to the LLC are as follows. From Fenton: Cash Accounts receivable Inventory From Myers: Land Adjusted Basis $165,000 0 82,500 718,250 Fair Market Value $165,000 297,000 206,250 668,250 FM originally intended to hold the inventory as investment property. Myers held the land as long-term investment property, but FM will use it in its business as a § 1231 asset. Within 30 days of formation, FM collects the receivables. Two years later, FM sells the inventory contributed by Fenton for $206,250 cash. After three years, FM sells the land for $668,250. FM realized the following income in the current year from these transactions: ● Capital gainOrdinary income of $fill in the blank 2 from collecting cash basis accounts receivable. ● Capital gainOrdinary income of $fill in the blank 4 from sale of inventory. For the land sale, FM recognizes a $fill in the blank 5 capital losscapital gain These rule exists to ensure that a partner and partnership can transfercannot transfer property between themselves and alter the inherent character of the underlying deferred income, gain, loss, or deduction.
Transcribed Image Text:On January 2 of the current year, Fenton and Myers form the FM LLC. Their contributions to the LLC are as follows. From Fenton: Cash Accounts receivable Inventory From Myers: Land Adjusted Basis $165,000 0 82,500 718,250 Fair Market Value $165,000 297,000 206,250 668,250 FM originally intended to hold the inventory as investment property. Myers held the land as long-term investment property, but FM will use it in its business as a § 1231 asset. Within 30 days of formation, FM collects the receivables. Two years later, FM sells the inventory contributed by Fenton for $206,250 cash. After three years, FM sells the land for $668,250. FM realized the following income in the current year from these transactions: ● Capital gainOrdinary income of $fill in the blank 2 from collecting cash basis accounts receivable. ● Capital gainOrdinary income of $fill in the blank 4 from sale of inventory. For the land sale, FM recognizes a $fill in the blank 5 capital losscapital gain These rule exists to ensure that a partner and partnership can transfercannot transfer property between themselves and alter the inherent character of the underlying deferred income, gain, loss, or deduction.
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