The ABC partnership has three equal partners, A, B, and C, and the following balance sheet: Assets Partner's Capital Adj. Basis FMV Adj. Basis FMV Cash 60,000 60,000 A 70,000 80,000 Cap Asset 1 90,000 60,000 B 70,000 80,000 Cap Asset 2 40,000 60,000 C 70,000 80,000 Cap Asset 3 20,000 60,000 210,000 240,000 210,000 240,000 A receives capital asset #1 in an operating distribution. A has a one-ninth interest worth $20,000 in the partnership capital and profits after the distribution. (a) What results to A and the partnership if there is no §754 election? Reconstruct the balance sheet after the distribution. (b) What results to A and the partnership if the partnership has made a §754 election? Reconstruct the balance sheet after the distribution. (c) How should any basis adjustment be allocated among the partners?
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
The ABC
| Assets | Partner's Capital | ||||
|---|---|---|---|---|---|
| Adj. Basis | FMV | Adj. Basis | FMV | ||
| Cash | 60,000 | 60,000 | A | 70,000 | 80,000 |
| Cap Asset 1 | 90,000 | 60,000 | B | 70,000 | 80,000 |
| Cap Asset 2 | 40,000 | 60,000 | C | 70,000 | 80,000 |
| Cap Asset 3 | 20,000 | 60,000 | |||
| 210,000 | 240,000 | 210,000 | 240,000 |
A receives capital asset #1 in an operating distribution. A has a one-ninth interest worth $20,000 in the partnership capital and profits after the distribution.
(a) What results to A and the partnership if there is no §754 election? Reconstruct the balance sheet after the distribution.
(b) What results to A and the partnership if the partnership has made a §754 election? Reconstruct the balance sheet after the distribution.
(c) How should any basis adjustment be allocated among the partners?
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