QUESTION 3The XYZ partnership has been operating for several years. All ofits assets were...QUESTION...

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Accounting

QUESTION 3
The XYZ partnership has been operating for several years. All ofits assets were purchased by the partnership, and at the end of thecurrent year it’s balance sheet, which has been expanded to showthe current fair market value of assets and capital, is asfollows:
Assets
Liabilities & Capital
AB/Book
FMV
Liabilities
Cash
$600
$600
None
Accts. Rec.
0
200
Equipment
100
200
Stock
500
1000
Land
300
1000
Total
$1500
$3000
Capital Accounts
Tax/Book
FMV
X
$500
$1000
Y
500
1000
Z
500
1000
$1500
$3000
On the last day of the current year, W joins the partnership. Inexchange for a contribution of $1000 cash, she receives a 25%interest in partnership profits, losses, and capital.
Reconstruct the balance sheet of the partnership following W’sadmission to the partnership, assuming, in the alternative:
The partnership does not elect to revalue its assets under §1.704- 1(b)(2)(iv)(f), or
The partnership does elect to revalue its assets under theregulations.
If W had purchased X’s interest in the partnership instead ofacquiring an interest through a contribution to the partnership,would the partnership be permitted to revalue its assets under theregulations? Why or why not?

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4.5 Ratings (862 Votes)

As W joins he will recognize one fourth of the fair market value of the partnership capital or 30004 750 as ordinary income Therefore W basis in the partnership interest will See Answer

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In: AccountingQUESTION 3The XYZ partnership has been operating for several years. All ofits assets were...QUESTION 3The XYZ partnership has been operating for several years. All ofits assets were purchased by the partnership, and at the end of thecurrent year it’s balance sheet, which has been expanded to showthe current fair market value of assets and capital, is asfollows:AssetsLiabilities & CapitalAB/BookFMVLiabilitiesCash$600$600NoneAccts. Rec.0200Equipment100200Stock5001000Land3001000Total$1500$3000Capital AccountsTax/BookFMVX$500$1000Y5001000Z5001000$1500$3000On the last day of the current year, W joins the partnership. Inexchange for a contribution of $1000 cash, she receives a 25%interest in partnership profits, losses, and capital.Reconstruct the balance sheet of the partnership following W’sadmission to the partnership, assuming, in the alternative:The partnership does not elect to revalue its assets under §1.704- 1(b)(2)(iv)(f), orThe partnership does elect to revalue its assets under theregulations.If W had purchased X’s interest in the partnership instead ofacquiring an interest through a contribution to the partnership,would the partnership be permitted to revalue its assets under theregulations? Why or why not?

	*Assets*		*Liabilities & Capital*
	*AB/Book*	*FMV*	*Liabilities*
Cash	$600	$600	None
Accts. Rec.	0	200
Equipment	100	200
Stock	500	1000
Land	300	1000
*Total*	$1500	$3000
			*Capital Accounts*
			*Tax/Book*	*FMV*
		X	$500	$1000
		Y	500	1000
		Z	500	1000
			$1500	$3000