The DEF cash method general partnership, which has not made a 754 election, had the following balance sheet at the time G purchased Ds interest for $50,000. D contributed the inventory to the partnership at a time when the value of the inventory was $15,000.

Assets Partners Capital

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

Cash $50,000 $50,000 D $100,000 $50,000

Inventory 30,000 10,000 E 125,000 125,000

Land 270,000 90,000 F 125,000 50,000

$350,000 $150,000 $350,000 $150,000

(i)Will the basis of the partnerships assets be adjusted under 742 as a result of Ds sale to G? Should G urge the partnership to make a 754 election?

(ii)Assuming no adjustments are made to the basis of the partnerships assets, what will be the result to G if the partnership sells the inventory for $10,000? What result to G if the partnership sells the land for $90,000?