Kenya sells her 20% partnership interest having a $30,000 basis to Ebony for $40,000 cash. At...
Kenya sells her 20% partnership interest having a $30,000 basis to Ebony for $40,000 cash. At the time of the sale, the partnership has no liabilities and its assets are as follows:
|
Basis |
FMV |
|
|
Cash |
$20,000 |
$20,000 |
|
Unrealized receivables |
0 |
40,000 |
|
Inventory |
10,000 |
40,000 |
|
Land (Sec. 1231) |
120,000 |
100,000 |
Kenya and Ebony have no agreement concerning the allocation of the sales price. Ordinary income recognized by Kenya as a result of the sale is
A) $6,000.
B) $10,000.
C) $12,000.
D) $14,000.
Homework Answers
ANSWER = d) $ 14,000
1) FMV of receivables and inventory= [0.20 × ($40,000 +
$40,000)] = $16,000
Minus: basis of receivables and inventory = [0.20 × (0 + $10,000)]
= ( 2,000)
Ordinary income recognized = $14,000
| Total | Sec 751 | Non-sec 751 | |
| Assets | Assets | ||
| Amount realized | 40000 | 16000 | 24000 |
| Less- Adjusted Basis | (30000) | (2000) | 28000 |
| Recognized gain/loss | 10000 | 14000 | (4000) |
| Ordinary Gain | Capital Loss |
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