A and B form partnership AB, with Partner A contributing property with a fair market value of $100,000 and adjusted tax basis of $40,000.  Partner A's property is a 10 year depreciable life asset with four years of remaining tax life.  The property is depreciated using the straight-line method.  Partner B contributes land with a fair market value of $100,000 and tax basis of $100,000.  In addition to the depreciation deduction from Partner A's contributed property, assume for the next 10 years the partnership has $25,000 of income and $25,000 of other deductible expenses. 

How much taxable income (or loss) will each partner recognize each year during the next 10 years under the following methods?

a.     Traditional method 

b.    Remedial method

Transcribed Image Text:

Martinez Company's ending inventory includes the following items. Units Cost per Unit Market per Unit $54 $ 50 78 95 36 Product Helmets Bats Shoes Uniforms 4782 17 38 Compute the lower of cost or market for ending inventory applied separately to each product. Inventory Items Units Helmets Bats Shoes Uniforms 24 $ 17 484 38 42 Cost Market 59 Per Unit 8853 50 78 95 36 69 $ 54 S 72 91 36 72 91 36 $ Cost Total Market 0 $ 0 LCM Applied to Items $ Martinez Company's ending inventory includes the following items. Units Cost per Unit Market per Unit $54 $ 50 78 95 36 Product Helmets Bats Shoes Uniforms 4782 17 38 Compute the lower of cost or market for ending inventory applied separately to each product. Inventory Items Units Helmets Bats Shoes Uniforms 24 $ 17 484 38 42 Cost Market 59 Per Unit 8853 50 78 95 36 69 $ 54 S 72 91 36 72 91 36 $ Cost Total Market 0 $ 0 LCM Applied to Items $

Answer rating: 100% (QA)

a Traditional Method Under the traditional method the partners would recognize their distributive share of partnership income or loss based on their ownership percentage in the partnership Since the i... View the full answer