Rashad Contributes a Machine Having a Basis of $30,000 and an FMV

question 69

Multiple Choice

Rashad contributes a machine having a basis of $30,000 and an FMV of $25,000 to a partnership in exchange for a 20% interest in partnership capital, profits, and losses. Prior to the contribution, the partnership had recourse liabilities of $20,000. The partnership assumes a $20,000 recourse liability that is owed by Rashad on the machine. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Rashad's basis in his partnership interest is

• A) $22,000.
• B) $34,000.
• C) $18,000.
• D) $11,000.

---

Definitions:

Net Income

The sum total of profit a company achieves after removing the costs and tax payments from its income.

Goodwill

An intangible asset that arises when a business is acquired for more than the fair market value of its net assets.

Equity Method

An accounting technique used by firms to assess the profits earned by their investments in other companies, by reporting these profits as income.

Common Stock

A type of security that signifies ownership in a corporation and represents a claim on part of the company's profits and assets.