Arthur Lybrand, LLP is a large law firm with the following balance sheets at September 30:...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Arthur Lybrand, LLP is a large law firm with the following balance sheets at September 30: Cash & equivalents Accounts receivable Office, furniture & fixtures Total Assets Liabilities Partner capital Total Liabilities & Capital FMV $400,000 -0- 300,000 350.000 780,000 Basis $400,000 $750,000 $1,480,000 $240,000 $240,000 $510,000 $1.240,000 $750,000 $1,480,000 On September 30, Ernest Cooper retired from the firm. Prior to his retirement, he owned a twenty percent interest in partnership capital, profits and losses. His tax basis in the partnership interest was $150,000. a. What is the minimum amount Ernest should accept in liquidation of his interest in the partnership? b. Assume Ernest receives a cash payment in the amount you determined in part a. What portion, if any, of that payment will be treated as a Section 736(a) payment rather than as a distribution? Assume capital is not a material income- producing factor for the partnership. C. Assume that Ernest receives a total cash payment of $500,000 from the partnership in complete liquidation of his interest therein. If the partnership agreement is silent with respect to goodwill, what portion of the payment will be taxed as ordinary income and what portion as capital gain? d. How would your answer to question change if the partnership agreement requires that retiring partners be compensated for their shares of partnership goodwill? Arthur Lybrand, LLP is a large law firm with the following balance sheets at September 30: Cash & equivalents Accounts receivable Office, furniture & fixtures Total Assets Liabilities Partner capital Total Liabilities & Capital FMV $400,000 -0- 300,000 350.000 780,000 Basis $400,000 $750,000 $1,480,000 $240,000 $240,000 $510,000 $1.240,000 $750,000 $1,480,000 On September 30, Ernest Cooper retired from the firm. Prior to his retirement, he owned a twenty percent interest in partnership capital, profits and losses. His tax basis in the partnership interest was $150,000. a. What is the minimum amount Ernest should accept in liquidation of his interest in the partnership? b. Assume Ernest receives a cash payment in the amount you determined in part a. What portion, if any, of that payment will be treated as a Section 736(a) payment rather than as a distribution? Assume capital is not a material income- producing factor for the partnership. C. Assume that Ernest receives a total cash payment of $500,000 from the partnership in complete liquidation of his interest therein. If the partnership agreement is silent with respect to goodwill, what portion of the payment will be taxed as ordinary income and what portion as capital gain? d. How would your answer to question change if the partnership agreement requires that retiring partners be compensated for their shares of partnership goodwill?
Expert Answer:
Answer rating: 100% (QA)
a 150000 On September 30 Ernest Cooper retired from the firm Prior to his retirement he owned a twenty percent interest in partnership capital profits ... View the full answer
Related Book For
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker
Posted Date:
Students also viewed these finance questions
-
The ABC Partnership has the following balance sheets at December 31: On that date, C sells his interest in the partnership to unrelated buyer G for $186,000. Basis FMV Cash $45,000 $45,000 Accounts...
-
Assume a company with the following balance sheet accounts: You are concerned only about overstatements of owner's equity. Set tolerable misstatement for the three relevant accounts such that the...
-
A DI with the following balance sheet (in millions) expects a net deposit drain of $15 million. Show the DI's balance sheet if the following conditions occur: a. The DI purchases liabilities to...
-
All of the following are advantages of licensing EXCEPT: the foreign country gains employment by having the product manufactured locally. the licensee gains information that allows it to start with a...
-
Eight obese persons were placed on a diet for 1 month, and their weights, at the beginning and at the end of the month, were recorded: Estimate the mean weight loss for obese persons when placed on...
-
Evaluate the stiffness matrix for the elements shown in Figure P11-6. Let E = 100 GPa and v = 0.3? Figure P11-6, (a) (b) (25, 25.0) 2 (10, 0, 0) (40, 0,0) (25, 0, 25) (10, 7, 0) (4, 2, 0) (12, 2, 0)...
-
Review your answers to the previous two questions. Comment on the persuasiveness of evidence from each test. Explain any factors that would affect your assessment. Fellowes and Associates Chartered...
-
Trekster Corrector guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 4% of sales. Assume that the Trekster dealer in Colorado Springs...
-
On August 1 , 2 0 2 2 , Colombo Company s treasurer signed a note promising to pay $ 1 2 2 , 1 0 0 on December 3 1 , 2 0 2 2 . The proceeds of the note were $ 1 1 5 , 8 0 0 . Required: a . Calculate...
-
Suppose you are assessing the merits of multiple designs of pillows based on durability, shape, and comfort. Use the table below to answer the following questions. You should set up and solve this...
-
A short column composed of two standard steel pipes is subjected to a load P= 20 kips, as shown in Fig. P9-6. Determine the compressive stress in each pipe. Neglect the weight of the pipes. Determine...
-
Use induction to prove that \(n !>2^{n}\) for \(n \geq 4\). Let \(\left\{F_{n}ight\}\) be the Fibonacci sequence, defined by the recursion formula \[ F_{n}=F_{n-1}+F_{n-2}, \quad F_{1}=F_{2}=1 \]
-
(a) Distinguish between current tax and deferred tax. (b) Distinguish between permanent differences and temporary differences. (c) Explain how temporary differences between accounting profits and...
-
In the Arrington opinion regarding what it means when someone comes to the hospital, the US Court of Appeals for the Ninth District wrote approvingly of HHSs position that it would defeat the purpose...
-
What are the three components of most OCL expressions?
-
Why are operation specifications in an object-oriented project likely to be small?
-
1. What is the purpose of dependent and independent variables in forecasting and what is the relationship? How does correlation factor into the relationship between variables? GIve an example of an...
-
Swifty company is a publicly held corporation whose $1 par value stock is actively traded at $30 per share. The company issued 3400 shares of stock to acquire land recently advertised at $93000. When...
-
Ball Corporation purchased 30 percent of Krown Companys common stock on January 1, 20X5, by issuing preferred stock with a par value of $50,000 and a market price of $120,000. The following amounts...
-
DeKalb City Council approved and adopted its 20X2 budget that contained the following amounts: Estimated revenues ........... $700,000 Appropriations .................. 660,000 Authorized transfer...
-
The Governmental Accounting Standards Board places exposure drafts (EDs) of proposed future standards on its website. These exposure drafts provide an early view of the GASBs consensus viewpoints on...
-
You shoot a beam of electrons through a double slit to make an interference pattern. After noting the properties of the pattern, you then double the speed of the electrons. What effect would this...
-
How many photons does a \(5.0 \mathrm{~mW}\) helium-neon laser \((\lambda=633 \mathrm{~nm})\) emit in 1 second? A. \(1.2 \times 10^{19}\) B. \(4.0 \times 10^{18}\) C. \(8.0 \times 10^{16}\) D. \(1.6...
-
Light consisting of \(2.7 \mathrm{eV}\) photons is incident on a piece of potassium, which has a work function of \(2.3 \mathrm{eV}\). What is the maximum kinetic energy of the ejected electrons? A....
Study smarter with the SolutionInn App