The BLM LLC's Balance Sheet on August 31 of the Current

question 120

Multiple Choice

The BLM LLC's balance sheet on August 31 of the current year is as follows.
$\begin{array}{lrr}&\text { Adjusted}\\&\text { Basis}&\text { FMV}\\\text { Cash } & \$ 60,000 & \$ 60,000 \\\text { Receivables } & -0- & 150,000 \\\text { Capital assets } & \underline{90,000} & \underline{300,000} \\& \$ 150,000 & \$ 510,000 \\\\\text { Nonrecourse debt } & \$ 90,000& \$ 90,000 \\ \text { Barney, capital } & 20,000&140,000 \\\text { Lillie, capital } & 20,000 &140,000\\ \text { Marshall, capital } & 20,000&140,000 \\&\$150,000&\$150,000 \end{array}$
The nonrecourse debt is shared equally among the LLC members. On that date, Lillie sells her one-third interest to Robyn for $170,000, including cash and relief of Lillie's share of the nonrecourse debt. Lillie's outside basis for her interest in the LLC is $50,000, including her share of the LLC's debt. How much capital gain and/or ordinary income will Lillie recognize on the sale?

• A) $100,000 capital gain; $50,000 ordinary income.
• B) $120,000 capital gain; $0 ordinary income.
• C) $150,000 capital gain; $0 ordinary income.
• D) $70,000 capital gain; $50,000 ordinary income.
• E) None of the above.

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Definitions:

Vouchers Payable

These are obligations or liabilities for goods and services received that are not yet paid for, usually validated by a voucher system.

Gross Method

An accounting practice where purchases are recorded at their full invoice price without deducting any purchase discounts taken.

Periodic Method

An accounting method where inventory purchases are recorded in a purchases account, with the inventory count and cost of goods sold calculated at the end of the accounting period.

Discounts Lost

A financial metric indicating the additional cost incurred by failing to take advantage of offered payment discounts by suppliers.