On January 2 of the current year, Fenton and Myers form the FM LLC. Their contributions to the LLC are as follows: (See picture attached) 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 $60,000 cash. After three years, FM sells the land for $200,000. How much income does FM recognize from these transactions, and what is its character? Why does this result apply?
On January 2 of the current year, Fenton and Myers form the FM LLC. Their contributions to the LLC are as follows: (See picture attached) 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 $60,000 cash. After three years, FM sells the land for $200,000. How much income does FM recognize from these transactions, and what is its character? Why does this result apply?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On January 2 of the current year, Fenton and Myers form the FM LLC. Their contributions to the LLC are as follows:
(See picture attached)
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 $60,000 cash. After three years, FM sells the land for $200,000. How much income does FM recognize from these transactions, and what is its character? Why does this result apply?
Transcribed Image Text:Fair Market
Adjusted
Basis
Value
From Fenton:
Cash
$ 50,000
$ 50,000
Accounts receivable
-0-
90,000
Inventory
From Myers:
25,000
60,000
Land
250,000
200,000
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