The HMS Partnership, a Cash Method of Accounting Entity, Has

question 2

Essay

The HMS Partnership, a cash method of accounting entity, has the following balance sheet at December 31 of last year:
Sam, who has a one-third interest in profits, losses, and liabilities, sells his partnership interest to Beverly, for $77,000 cash on January 1 of this year. Sam's basis in his partnership interest (which, of course, includes a share of partnership liabilities) at the time of the sale was $17,000. In addition, Beverly assumes Sam's share of the partnership liabilities. What is the amount and character of the gain that Sam will recognize from this sale?

Distinguish between private, social costs, and benefits in the presence of externalities.

Calculate the efficient level of output and price in markets with externalities.

Recognize the difference between negative and positive externalities and their impact on social welfare.

Explain how externalities lead to an inefficient allocation of resources in the absence of government intervention.

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Definitions:

Repayment

The act of paying back money previously borrowed from a lender.

Semiannually

Occurring or done twice a year, typically every six months.

Debt Investments

Investments in bonds or other forms of debt securities that provide the investor with interest income.

Bonds

Fixed income investments representing a loan made by an investor to a borrower, typically corporate or governmental, which pays periodic interest payments and returns the principal at maturity.