The ABC partnership has three equal partners, A, B, and C, and the following balance sheet:

Assets Partners Capital

A.B. F.M.V. A.B. F.M.V.

Cash $60,000 $60,000 A $70,000 $80,000

Capital Asset #1 90,000 60,000 B 70,000 80,000

Capital Asset #2 40,000 60,000 C 70,000 80,000

Capital Asset #3 20,000 60,000

$210,000 $240,000 $210,000 $240,000

A receives capital asset #1 in an operating distribution. A has a one-ninth interest worth $20,000 in the partnership capital and profits after the distribution.

1. What results to A and the partnership if there is no 754 election? Reconstruct the balance sheet after the distribution.
2. What results to A and the partnership if the partnership has made a 754 election? Reconstruct the balance sheet after the distribution.
3. How should any basis adjustment be allocated among the partners?