Honeymooner is a calendar year general partnership whose partners, Kramden and N
ID: 2337481 • Letter: H
Question
Honeymooner is a calendar year general partnership whose partners, Kramden and Norton, share equally in the profits, losses and capital. Kramden and Norton founded the partnership several years ago and funded the partnership with cash contributions. As of December 31, 2003, the partnership had the following balance sheet:
Description
Tax Basis
Fair Market Value
Cash
$30,000
$30,000
Inventory
$10,000
$50,000
Equipment
$20,000
$70,000
Land Held for Investment
$120,000
$10,000
Totals
$180,000
$160,000
Capital
Kramden
$90,000
$80,000
Norton
$90,000
$80,000
Totals
$180,000
$160,000
The partnership is liquidated by the following distributions:
Description
Tax Basis
Fair Market Value
To Kramden: Cash
$30,000
$30,000
Inventory
$10,000
$50,000
Totals
$40,000
$80,000
To Norton Equipment:
$20,000
$70,000
Land
$120,000
$10,000
Totals
$140,000
$80,000
For this question and question number 10 only, assume that instead of a liquidation of Honeymooner or a redemption of Kramden’s interest, Kramden sells his entire partnership interest to Alice for $80,000; what gain or loss does Kramden recognize and what is the character of such gain or loss assuming that the purchase price was allocated based on the above values under arm’s length negotiations?
Description
Tax Basis
Fair Market Value
Cash
$30,000
$30,000
Inventory
$10,000
$50,000
Equipment
$20,000
$70,000
Land Held for Investment
$120,000
$10,000
Totals
$180,000
$160,000
Capital
Kramden
$90,000
$80,000
Norton
$90,000
$80,000
Totals
$180,000
$160,000
Explanation / Answer
As per question, Since it is considered that Kramden has sold his entire partnership share to Alice for $80000, There will be No gain/loss to Kramden, as per below calculations:
Kramden's Adjusted basis in Partneship =Total Fair market value. of partnsrhip assets*Share in partnership
= 160000*50%
= 80000
Gain/Loss = sale price of partneship interest - Adjusted basis in partneship
= 80000-80000
= 0
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.