Professional Documents
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41. [LO 2] Cosmo contributed land with a fair market value of $400,000 and a tax basis of
$90,000 to the Y Mountain partnership in exchange for a 25 percent profits and capital
interest in the partnership. The land is secured by $120,000 of nonrecourse debt. Other than
this nonrecourse debt, Y Mountain partnership does not have any debt.
a. How much gain will Cosmo recognize from the contribution?
b. What is Cosmos tax basis in his partnership interest?
a. $0.
As reflected in the table below, Cosmo does not recognize any gain because the
$120,000 of cash he is deemed to receive from debt relief does not exceed his basis in
Y Mountain prior to this deemed distribution.
Description
Cosmo
Explanation
$90,000
$30,000 Nonrecourse
land
allocated only
to Cosmo
$22,500 25% x
mortgage
Basis immediately prior to
[120,000 - (2)]
$142,500
debt relief
(4) Relief from mortgage debt
Cosmos initial tax basis in Y
Mountain
b. $22,500 as indicated in the table above.
($120,000)
$22,500 (1) + (2) + (3)
+ (4)
42. [LO2] When High Horizon LLC was formed, Maude contributed the following assets in
exchange for a 25 percent capital and profits interest in the LLC:
Maude:
Cash
Land*
Totals
a. $0.
None of the members recognize gain because their debt relief was not in excess of
their bases in their LLC interest prior to any debt relief. See table below:
Description
Maude
Other
Explanation
Members
(1) Basis in contributed Land
$100,000
$20,000
$60,000
$220,000
Nonrecourse
land
allocated only
to Maude
$25,000
$25,000
mortgage
Basis immediately prior to
25% x
[160,000 - (3)]
$205,000
debt relief
(5) Relief from mortgage debt
Each members initial tax
basis in the LLC
($160,000)
$45,000
$245,000
b. $45,000.
See table in part a. above.
c. $245,000 each.
See table in part a. above.
43. [LO2] Kevan, Jerry, and Dave formed Albee LLC. Jerry and Dave each contributed
$245,000 in cash. Kevan contributed the following assets:
Kevan:
Cash
Land*
Totals
a. $0.
None of the members recognize gain because their debt relief was not in excess of
their bases in their LLC interest prior to any debt relief. See table below:
Description
Kevan
Other
Explanation
Members
(1) Basis in contributed Land
$120,000
$15,000
$90,000
$245,000
Nonrecourse
land
allocated only
to Kevan
$40,000
$40,000
33.3% x
[$210,000 -
(3)]
Basis immediately prior to
$265,000
debt relief
(5) Relief from mortgage debt
($210,000)
$55,000
$285,000
b. $55,000.
See table in part a. above.
c. $285,000 each.
See table in part a. above
58. [LO 4] Turtle Creek Partnership had the following revenues, expenses, gains, losses, and
distributions:
Sales revenue
Long-term capital gains
Cost of goods sold
Depreciation - MACRS
Amortization of organization costs
Guaranteed payments to partners for general management
Cash distributions to partners
$40,000
$2,000
($13,000)
($3,000)
($1,000)
($10,000)
($2,000)
Given these items, what is Turtle Creeks ordinary business income (loss) for the year?
Turtle Creeks ordinary business income is calculated in the table below:
Description
Sales revenue
Amount
$40,000
Less:
Cost of goods sold
(13,000)
Depreciation - MACRS
(3,000)
(1,000)
Guaranteed payments
(10,000)
$13,000
$2,000
Guaranteed payments
$10,000
Cash distributions
$2,000
note that guaranteed payments must be separately disclosed to the partners that receive
them, and cash distributions must be separately disclosed so that partners can reduce the
tax basis of their partnership interests by the amount of the distributions.
59. [LO 4] Georgio owns a 20 percent profits and capital interest in Rain Tree LLC. For the
current year, Rain Tree had the following revenues, expenses, gains, and losses:
Sales revenue
Gain on sale of land (1231)
Cost of goods sold
Depreciation - MACRS
179 deduction*
Employee wages
Fines and penalties
Municipal bond interest
Short-term capital gains
Guaranteed payment to Sandra
$70,000
$11,000
($26,000)
($3,000)
($10,000)
($11,000)
($3,000)
$6,000
$4,000
($3,000)
*Assume the 179 property placed in service limitation does not apply.
a. How much ordinary business income (loss) is allocated to Georgio for the year?
b. What are Georgios separately stated items for the year?
a. Georgios allocation of ordinary business income is reflected in the table below:
Description
Total
20%
Amount
Allocated to
Georgio
Sales revenue
$70,000
Less:
Cost of goods sold
Depreciation - MACRS
Employee wages
Guaranteed payments
Ordinary Business Income
(26,000)
(3,000)
(11,000)
(3,000)
$27,000
$5,400
Description
Total
20%
Amount
Allocated to
Georgio
$11,000
$2,200
(10,000)
(2,000)
4,000
800
6,000
1,200
(3,000)
(600)
*Although these amounts are not included in Georgios taxable income computation, they
must be separately disclosed because they affect Georgios tax basis in his LLC interest.