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Diana, a partner in the cash basis HDA Partnership, has a one-third interest in partnership...

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Accounting

Diana, a partner in the cash basis HDA Partnership, has a one-third interest in partnership profits and losses. The partnership's balance sheet at the end of the current year is as follows. Cash $120,000 (basis) $120,000 (FMV) Receivables $0 (basis) $240,000 (FMV) Land $150,000 (basis) $390,000 (FMV) Hannah, capital $90,000 (basis) $250,000 (FMV) Diana, capital $90,000 (basis) $250,000 (FMV) Alexis, capital $90,000 (basis) $250,000 (FMV) Diana sells her interest in the HDA Partnership to Kenneth at the end of the current year for cash of $250,000. (Note: Relates to a distribution that causes an out-of-balance situation.)

Use Microsoft Excel worksheet that illustrates the out-of-balance situation and how a 754 adjustment can restore balance. Use the intuitive approach to allocate any step-up to partnership assets. Hint:You'll need to significantly modify the format for this situation.

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