ACCT 597 Assignment 5 The KJA partnership is formed by Kennedy, Jane, and Allyson. Kennedy will contribute $500,000 cash as will Jane. Allyson will contribute real property with a FMV of $800,000 and subject to a nonrecourse debt of $300,000. This property has a basis of $400,000 to Allyson at the date of contribution. A tax basis balance sheet is then: Cash 1,000,000 Property 400,000 NR Debt 300,000 Kennedy capital 500,000 Jane capital 500,000 Allyson capital 100,000 After formation the partnership will borrow from a bank to fund development. The partnership borrows $2,000,000 from the bank. Kennedy will pledge land that she owns outside of the partnership as security for this loan. That land has a FMV of $600,000 at the date of the pledge. Jane will personally guarantee the debt. Neither Kennedy nor Allyson are involved in the guarantee. At the end of the year the balance sheet is as follows (no activity has taken place other than the contribution and the loan): Cash 3,000,000 Property 400,000 NR Debt 300,000 Bank Debt 2,000,000 Kennedy capital 500,000 Jane capital 500,000 Allyson capital 100,000 Show how the partners' shares of the debt will be determined and classified on the K-1 forms