BugOff, LLC, a general partnership, had the following balance sheets at December
ID: 2577634 • Letter: B
Question
BugOff, LLC, a general partnership, had the following balance sheets at December 31:
Basis FMV
Cash $50,000 $50,000
Inventory 15,000 30,000
Depreciable equipment
(original cost $120,000) 40,000 100,000
Land 45,000 60,000
$150,000 $240,000
Liabilities $60,000 $60,000
Capital, April 45,000 90,000
Captial, May 30,000 60,000
Capital, June 15,000 30,000
$150,000 $240,000
On January 1, May sold her one-third interest in the partnership to an unrelated buyer for $60,000. How much ordinary income will May recognize on the sale under Code Sec. 751(a)?
a. $5,000
b. $30,000
c. $20,000
d. $25,000
e. None of the above
Explanation / Answer
Option B as it would be consider as sales for him and he will not be earning the same amount as he will not be partner in the firm