D and C each contribute $500,000 cash to the D&C Partnership. D is the general partner and C is the limited
partner. The partnership purchases a building on leased land for $1,000,000 and elects straight line cost
recovery. Assume the property is 10 year property. According to the partnership agreement all items of income
and loss equally with the exception of cost recovery deductions. They are allocated 20% to D and 80% to C.
Only D has an obligation to restore a deficit in her capital account. In year 1, assume partnership income is
$100,000 and partnership expenses (exclusive of cost recovery deductions) are $80,000. In year 2, income
equals expenses with the exception of the cost recovery deductions. Assume all of the 704(b) requirements are
a. Compute the capital balances for both partners at the end of years 1 and 2.
Balance at end of year 1
Balance at the of year 2
Assume the partnership sells the building on January 1 of year 3 for $950,000 and immediately liquidates.
b. What is the amount of gain from the sale of the building?
C. Allocate the gain to each partner's capital account.
What is the total amount of partnership cash on hand after the sale of the building?
e. When the partnership is liquidated, how will the cash be allocated?
Answer rating: 100% (QA)
a Compute the capital balances for both partners at the end of years 1 and 2 Year 1 D s Capital BalaView the full answer