Exercise 11-18 (Algorithmic) (LO. 6) The Whitewater LLP is equally owned by thre

Question

Exercise 11-18 (Algorithmic) (LO. 6) The Whitewater LLP is equally owned by three partners and shows the following balance sheet at the end of the current tax year Basis FMV $94,500 31,500 126,000 $126,000 $252,000 $84,000 84,000 84,000 $126,000 $252,000 Cash Unrealized receivables Land $94,500 31,500 Petula, capital Prudence, capital Primrose, capital $42,000 42,000 42,000 Partner Petula is an active (i.e., "general") partner retiring from the service-oriented partnership. She receives $94,500 cash, none of which is stated to be for goodwill. a. How much of the payment is for "unstated goodwill" The distribution results in "unstated goodwill" of b. How is the $94,500 allocated between a § 736(a) income payment and a § 736(b) property payment? The $94,500 cash payment is allocated as follows: § 736(a) income payment: § 736(b) property payment:

Explanation / Answer

a. unstated goodwill(based on fmv) = 94500-84000 = 10500

b. income payment = share of goodwill + share of unrealized recievables = 10500+10500 = 21000

property payment = share in capital+ increase in value of land

= 42000+ (126000-31500)/3 = 73500

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