Partnership Formation (LO 10.2) Larry and Jessica form the L&J Partnership. Larr

Question

Partnership Formation (LO 10.2)

Larry and Jessica form the L&J Partnership. Larry contributes property with an adjusted basis of $70,000, a fair market value of $200,000, and subject to a liability of $80,000 in exchange for a 40 percent interest in the partnership. Jessica receives a 60 percent interest in the partnership in exchange for services performed for the partnership, valued at $10,000, and cash of $170,000. If an amount is zero, enter "0".

a. What amount of gain or loss must Larry recognize as a result of his transfer of the property to the partnership? $

b. What is Larry's basis in his partnership interest immediately after the formation of the partnership including allocation of partnership liabilities? $

c. What is the partnership's basis in the property contributed by Larry? $

d. What is Jessica's basis (after considering Larry's liability assumed by the partnership) in her partnership interest immediately after the formation of the partnership including allocation of partnership liabilities? $

e. How much income does Jessica recognize on the exchange? $

Explanation / Answer

a) $0 Calculation 80,000 x 60% = 48,000 48,000 < 70,000 = no gain b) $22,000 Calculation 70,000 - 48,000 = 22,000 c) $70,000 d) $228,000 Calculation 170,000 + 10,000 = 180,000 80,000 x 60% = 48,000 180,000 + 48,000 = 228,000

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