Initial Investments and Tax Bases [AICPA Adapted]
The DELS partnership was formed by combining individual accounting practices on May 10,
20X1. The initial investments were as follows:
| Current Value | Tax Basis |
Delaney: |
|
|
Cash | $ 8,000 | $ 8,000 |
Building | 60,000 | 32,000 |
Mortgage payable, assumed by DELS | 36,000 | 36,000 |
Engstrom: |
|
|
Cash | 9,000 | 9,000 |
Office furniture | 23,000 | 17,000 |
Note payable, assumed by DELS | 10,000 | 10,000 |
Lahey: |
|
|
Cash | 12,000 | 12,000 |
Computers and printers | 18,000 | 21,000 |
Note payable, assumed by DELS | 15,000 | 15,000 |
Simon: |
|
|
Cash | 21,000 | 21,000 |
Library (books and periodicals) | 7,000 | 5,000 |
a. Prepare thejournal entry to record the initial investments, using GAAP accounting.
b. Calculate the tax basis of each partner's capital if Delaney, Engstrom, Lahey, and Simon agree to assume equal amounts for the payables.
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