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18 April, 03:21

Pamela, a 1/3 partner, has an adjusted basis of $100,000 for her partnership interest. If Pamela sells her entire partnership interest to Emma for $135,000 cash, how much capital gain and ordinary income must Pamela recognize from the sale

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  1. 18 April, 03:51
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    Answer: Capital gain = $10,000; Ordinary income = $25,000

    Explanation:

    Here is the complete question:

    The PLM Partnership balance sheet includes the following assets on December 31 of the current year:

    Basis FMV

    Cash $230,000 $230,000

    Accounts receivable 0 75000

    Land 70,000 100,000

    Total $300,000 $405,000

    Pamela, a 1/3 partner, has an adjusted basis of $100,000 for her partnership interest. If Pamela sells her entire partnership interest to Emma for $135,000 cash, how much capital gain and ordinary income must Pamela recognize from the sale?

    The following can be calculated based on the question above:

    Pamela's share of the unrealized receivables will be the ordinary income which will be the unrealized receivables of $75000 which is then multiplied by 1/3 which is the interest. This will be:

    Ordinary income = 1/3 * $75,00

    = $25,000

    The capital gain will be the difference that occurs between total gain and ordinary income.

    Total gain difference

    = $135,000 - $100,000

    = $35,000

    Ordinary Income = $25,000

    Capital gain = $35,000 - $25,000

    = $10,000
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