Ann and Bob are equal partners and formed the partnership six years earlier. The partnership uses the cash method of accounting. At the end of the year, Ann sold her interest to Carl for $15,000.

At the time of the sale, the balance sheet appeared as follows:

                                            Adj. Basis                       FMV

Cash                                  $10,000                      $ 10,000

Accounts Receivable                                           $20,000            

                                          $ 10,000                      $ 30,000

 

Partners' Capital:

Ann                                   $ 5,000                        $ 15,000

Bob                                   $ 5,000                        $ 15,000

                                        $ 10,000                        $ 30,000

 

1. Assuming the partnership has made no elections

a. What are the tax consequences to Ann and Carl? Prepare a balance sheet to reflect the situation of the partners after the sale.

b. What are the tax consequences to Carl when the partnership collects the $20,000 of accounts receivable? Prepare a balance sheet to reflect the situation of the partners after the collection of the accounts receivable.

 

2. Same as above except assume the partnership made an election under §754.

Answer rating: 100% (QA)

1 Assuming the partnership has made no elections a Tax Consequences to Ann and Carl Anns taxable gai... View the full answer