Lemon, Lime, and Orange, three cash method, calendar year individuals, form Starburst Genera Partnership to create fruit candies. Before forming this partnership, they each had their own sole proprietorship. The partners contribute the following property (in each case worth $400 net of liabilities) in exchange for equal 1/3 interests in the partnership's capital, profits and losses (see the table below of property contributed by each partner). The partnership assumes all liabilities encumbering the contributed assets. Assume that the partners are responsible for an equal share of the partnership's liabilities. What is the most that any specific partner recognizes on these transactions? • Lemon contributes land with a fair market value of $860, which is encumbered by a recourse mortgage of $540. Lemon has held the land for several years as an investment, and his basis in the land is $200. Lemon also contributes $80 in cash. • Lime contributes a building, a § 1231 asset, with a value of $520 in which Lime has an adjusted basis of $260. The building was purchased several years ago by Lime and is subject to a recourse mortgage $120. Orange contributes zero basis accounts receivable from his business worth $700 and assigns his accounts payable of $300 to the partnership. ● $0 $120 $200 $40
Lemon, Lime, and Orange, three cash method, calendar year individuals, form Starburst Genera Partnership to create fruit candies. Before forming this partnership, they each had their own sole proprietorship. The partners contribute the following property (in each case worth $400 net of liabilities) in exchange for equal 1/3 interests in the partnership's capital, profits and losses (see the table below of property contributed by each partner). The partnership assumes all liabilities encumbering the contributed assets. Assume that the partners are responsible for an equal share of the partnership's liabilities. What is the most that any specific partner recognizes on these transactions? • Lemon contributes land with a fair market value of $860, which is encumbered by a recourse mortgage of $540. Lemon has held the land for several years as an investment, and his basis in the land is $200. Lemon also contributes $80 in cash. • Lime contributes a building, a § 1231 asset, with a value of $520 in which Lime has an adjusted basis of $260. The building was purchased several years ago by Lime and is subject to a recourse mortgage $120. Orange contributes zero basis accounts receivable from his business worth $700 and assigns his accounts payable of $300 to the partnership. ● $0 $120 $200 $40
Chapter10: Partnerships: Formation, Operation, And Basis
Section: Chapter Questions
Problem 59P
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Transcribed Image Text:Lemon, Lime, and Orange, three cash method, calendar year individuals, form Starburst General
Partnership to create fruit candies. Before forming this partnership, they each had their own sole
proprietorship. The partners contribute the following property (in each case worth $400 net of
liabilities) in exchange for equal 1/3 interests in the partnership's capital, profits and losses (see the
table below of property contributed by each partner). The partnership assumes all liabilities
encumbering the contributed assets. Assume that the partners are responsible for an equal share of
the partnership's liabilities. What is the most that any specific partner recognizes on these
transactions?
• Lemon contributes land with a fair market value of $860, which is encumbered by a recourse
mortgage of $540. Lemon has held the land for several years as an investment, and his basis in
the land is $200. Lemon also contributes $80 in cash.
• Lime contributes a building, a § 1231 asset, with a value of $520 in which Lime has an adjusted
basis of $260. The building was purchased several years ago by Lime and is subject to a
recourse mortgage $120.
• Orange contributes zero basis accounts receivable from his business worth $700 and assigns
his accounts payable of $300 to the partnership.
O
$0
$120
$200
$40
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