Hello, this is a TAX scenario for a class on pass-throughentities. Please show all calculations and work for each question(a-e listed below):
KEY INFORMATION:
John, Karl, and Laura form an entity under state law to be knownas JKL. The entity elects to be taxed as a partnership. The threeowners make the following initial contributions:
- John contributes $26,000 in cash and agrees todo all of the accounting work required by the partnership for 3full years. John would normally charge $33,000 for similaraccounting work done on behalf of a paying client. However, John’sout of pocket expenses in performing this work for JKL will be$800. By the end of the first year John’s out of pocketexpenditures totaled $170. John will receive a 40%partnership interest.
- Karl contributes land with a building on it.Karl paid $50,000 for the land 12 years ago, and constructed thebuilding at a cost of $195,000 two years ago. Karl claimed $15,000is depreciation on the building before transferring the building tothe partnership. The land and building have a current fair marketvalue of $400,000, but were subject to a liability of $180,000 onthe date of the transfer to the partnership. The partnershipassumed full responsibility for repayment of this debt.Karl will receive a 20% interest in thepartnership.
- Laura transferred a complete technologypackage, including 4 computers, 4 printers, memory, memory backup,security protection, software and an extensive data base whichLaura had acquired 4 years ago. The technology package cost$112,000 when it was originally acquired, but had been fullydepreciated prior to the time of the transfer to the partnership.The technology package had a fair market value of $44,000 on thedate of the transfer to the partnership. Laura will receivea 40% interest in the partnership.
REQUIRED QUESTIONS (Please answer according to theinformation above):
Provide your written answer to each of the following questions(Include all calculations and work):
- How much gain or loss must John recognize as a result of thethree transfers and what is his basis in his partnership interestimmediately after all transfers to the partnership?
- How much gain or loss must Karl recognize as a result of thethree transfers and what is his basis in his partnership interestimmediately after all transfers to the partnership?
- How much gain or loss must Laura recognize as a result of thethree transfers and what is her basis in her partnership interestimmediately after all transfers to the partnership?
- How much gain or loss must JKL recognize as a result of thethree transfers and what is JKL’s basis in each of its assetsimmediately after all transfers to the partnership?
- Prepare JKL’s balance sheet immediately after all of thetransfers, and before any business is conducted?
