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Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Dave LaCroix recently received a 10 percent capital and profits interest in Cirque Capital LLC in exchange for consulting
services he provided. If Cirque Capital had paid an outsider to provide the advice, it would have deducted the payment as
compensation expense. Cirque Capital's balance sheet on the day Dave received his capital interest appears below:
Fair Market
Value
Basis
Assets:
Cash
Investments
$ 160,000
290,000
100,000
$ 160,000
314,000
200,000
$674,000
Land
www.
Totals
$ 550,000
Liabilities and capital:
Nonrecourse liabilities
$ 180,000
Lance*
$ 180,000
185,000
185,000
247,000
247,000
Robert*
Totals
$ 550,000
$ 674,000
*Assume that Lance's basis and Robert's basis in their LLC interests equal their tax basis capital accounts plus their
respective shares of nonrecourse liabilities. (Leave no answer blank. Enter zero if applicable.)
d. Compute and characterize any gain or loss Dave may have to recognize as a result of his admission to Cirque Capital if he receives
only a profits interest.
Gain or loss recognized
as](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd86f873c-3594-41b9-9be1-79a3f8ba94bb%2F6cdbfd38-bede-40d4-9d05-4769b4d17d7b%2F75iy3a_processed.png&w=3840&q=75)
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Required information
[The following information applies to the questions displayed below.]
Dave LaCroix recently received a 10 percent capital and profits interest in Cirque Capital LLC in exchange for consulting
services he provided. If Cirque Capital had paid an outsider to provide the advice, it would have deducted the payment as
compensation expense. Cirque Capital's balance sheet on the day Dave received his capital interest appears below:
Fair Market
Value
Basis
Assets:
Cash
Investments
$ 160,000
290,000
100,000
$ 160,000
314,000
200,000
$674,000
Land
www.
Totals
$ 550,000
Liabilities and capital:
Nonrecourse liabilities
$ 180,000
Lance*
$ 180,000
185,000
185,000
247,000
247,000
Robert*
Totals
$ 550,000
$ 674,000
*Assume that Lance's basis and Robert's basis in their LLC interests equal their tax basis capital accounts plus their
respective shares of nonrecourse liabilities. (Leave no answer blank. Enter zero if applicable.)
d. Compute and characterize any gain or loss Dave may have to recognize as a result of his admission to Cirque Capital if he receives
only a profits interest.
Gain or loss recognized
as
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