Plainway Partners, a general partnership, had the following balance sheets at De
ID: 2577635 • Letter: P
Question
Plainway Partners, a general partnership, had the following balance sheets at December 31:
Basis FMV
Cash $50,000 $50,000
Inventory 10,000 30,000
Land 90,000 60,000
$150,000 $140,000
Capital, Tom 75,000 70,000
Captial, Dick 60,000 56,000
Capital, Harry 15,000 14,000
$150,000 $140,000
On January 1, Harry sold his ten percent interest in the partnership to an unrelated buyer for $14,000. How much ordinary income will Harry recognize on the sale under Code Sec. 751(a)?
a. Zero, he will recognize a loss on the sale.
b. $2,000
c. $20,000
d. $14,000
e. None of the above
Explanation / Answer
Ans b. $2000
Under sec. 751(a) Inventory and unrealised gain is considered
Here difference between basis and fair market value of inventory =30000-10000= 20000
Harry sold his ten percent interest in the partnership
10% of 20000 = 2000