Question on a MC problem

  • Creator
    Topic
  • #187802
    LL Cool Jim
    Participant

    Reid, Welsh, and May are equal partners in the RWM partnership. Reid’s basis in the partnership interest is $60,000. Reid receives a liquidating distribution of $61,000 cash and land with a fair market value of $14,000 and an adjusted basis of $12,000. What gain must Reid recognize upon the liquidation of his partnership interest?

    A.

    $0

    B.

    $1,000

    C.

    $13,000

    D.

    $15,000

    Answer is $1K, but my question is, why $12K from the land is not counted?

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Viewing 13 replies - 1 through 13 (of 13 total)
  • Author
    Replies
  • #589044
    Anonymous
    Inactive

    I think it is because gains and losses between a partner and a partnership are not recognized. The $1,000 is the difference between the distribution and the partners basis in the partnership.

    #589045
    LL Cool Jim
    Participant

    it says Reid “received' cash and land. sorry, not trying to be rude, but I can't have “I think” as an answer.

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    #589046
    Anonymous
    Inactive

    the 12k was his before and it is still his now, he still has basis in that property and will pay taxes on it if he sells it at a later date.

    #589047
    Anonymous
    Inactive

    All you need to know is 61,000-60,000= 1,000 gain.

    The rest of the information is irrelevant because a partnerships basis is passed on to a partner.

    #589048
    LL Cool Jim
    Participant

    “…receives a liquidating distribution of $61,000 cash AND land “

    I guess I'm getting hung up on “AND land”.

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    #589049
    Anonymous
    Inactive

    If that's the case, why isn't the answer “C”? The way I read it, I thought the total value of the distribution is $61k. These books are written by humans and do have errors. You should read the explanation carefully. Hopefully that will help.

    Thank god I already passed this test.

    #589050
    LL Cool Jim
    Participant

    All the it says in the answer is $61K – $60K and said the land is irrelevant. but doesn't go into why. that's why i'm asking here, hoping someone will know why not land since it's AND.

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    #589051
    Anonymous
    Inactive

    Imma do some research.

    It's either do that, or wrap up this pension audit I have stinking up my desk and there's no way I'm working hard at 3:30 on a sunny Friday afternoon.

    #589052
    Anonymous
    Inactive

    I still think there be a typo in your book.

    I'm done with this topic.

    If it makes you feel any better, I DID see a ton of questions like this on the exam; however, not a one of 'em was this difficult.

    #589053
    PurpleK
    Participant

    Gain from a liquidating distribution is determined only by reference to “money” distributed including marketable securities. Generally, a partner recognizes no gain on a distribution of property until he sells or otherwise disposes of the distributed property. Various exceptions apply. See Section 731 and related Regs 1.731-1(a).

    #589054
    LL Cool Jim
    Participant

    Thank you all for the assistance. Have a good weekend everyone!

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    #589055

    Second what Purple K said. Note that the land would have a basis of 0 after the cash distribution. If all he recieved was land the basis in the land would be 60k (step up). If 30k cash was received, the land would have a basis of 30k as well. Esentially non liquid assets have basis adjusted to defer g/l.

    ALL 4 parts passed summer 13
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    #589056

    What should be the answer for the below mcqs:

    1. Mark & Jones, CPAs, and its client, Smith Lighting, are discussing a possible advisory engagement in which the firm would review Smith's account receivable (A/R) system and recommend changes that would improve the company's collection process and speed collections. Smith proposes to pay Mark & Jones a fee based on improved performance in A/R collections. Would such an arrangement raise any ethical concerns?

    A. No, but only if Smith is a publicly traded company subject to SEC and PCAOB rules.

    B. No, provided Mark & Jones documents the arrangement clearly in the engagement letter.

    C. Yes, but only if Mark & Jones was performing other services for Smith.

    D. Yes, if Mark & Jones also performed a review engagement for Smith.

    2. Ben, a consulting manager of George & Co., is considering membership on an audit client's board of directors. Ben does not provide any services to this client. Which of the following statements describing this situation is true?

    A. Ben may join the board because he is not an auditor.

    B. Ben may join the board because he is not a partner.

    C. Ben may not join the board because the rules prohibit all professionals in the firm from serving as a director of a client.

    D. Ben may not join the board because only non-managerial employees of the firm may serve as client management.

    3. A former client of Aaron Derek, CPA, filed a lawsuit in state court alleging that Aaron failed to exercise due care in the performance of tax and compilation services performed in 2011. Aaron firmly believes that he performed his services with competence and diligence. In his defense, he plans to admit to making one minor error which he says was inadvertent and did not have a material effect on the client's taxes or financial position. In light of his admission, has Aaron complied with the AICPA Code's standard of due care and why?

    A. No. He obviously did not discharge his professional responsibilities with competence and diligence.

    B. No. He did not perform professional services to the best of his abilities.

    C. Yes. He has chosen to be honest in reporting that he made an error.

    D. Yes. The AICPA standard for due care does not require CPAs to be infallible.

Viewing 13 replies - 1 through 13 (of 13 total)
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