Allen, Brewster and Clare own 50%, 40% and 10%, respectively, of the interests in Spacemaker LLC, a limited liability company truced as a partnership which is in the business of installing custom closet systems. Its balance sheet (with values added) is as follows:

Brewster wants out. Because Spacemaker is short on cash, Brewster agrees to surrender his interest in exchange for the partnership's investment in land (which happens to be an unimproved lot next to Brewster's house), valued at $32,000, and a new closet system from Spacemaker's inventory, valued at $16,000. Following this distribution, what is Brewster's tax basis in these two assets?

1. Inventory, $4,000; land, $36,000
2. Inventory, $4,000; land, $40,000
3. Inventory, $4,000; land, $84,000
4. Inventory, $13,333; land, $26,667
    

Transcribed Image Text:

Assets Liabilities Тaк/Вook FMV Tax/Book FMV Cash $ 8,000 $ 8,000 Bank Debt $120,000 $120,000 Inventory 10,000 40,000 Receivables 42,000 42,000 Capital Equipment 120,000 118,000 Allen 50,000 60,000 Land 40,000 32,000 Brewster 40,000 48,000 Clare 10,000 12,000 Total Liabilities $240,000 and Capital Total Assets $220,000 $220,000 $240,000 Assets Liabilities Тaк/Вook FMV Tax/Book FMV Cash $ 8,000 $ 8,000 Bank Debt $120,000 $120,000 Inventory 10,000 40,000 Receivables 42,000 42,000 Capital Equipment 120,000 118,000 Allen 50,000 60,000 Land 40,000 32,000 Brewster 40,000 48,000 Clare 10,000 12,000 Total Liabilities $240,000 and Capital Total Assets $220,000 $220,000 $240,000

Answer rating: 100% (QA)

We have Assets to be surrendered to Brewstersurrender value Land 32000 Invent... View the full answer