Josh Owns a 25% Capital and Profits Interest in the Calendar

question 38

Essay

Josh owns a 25% capital and profits interest in the calendar year GDJ Partnership. His adjusted basis for his partnership interest on October 15 of the current year is $300,000. On that date, the partnership liquidates and makes a proportionate distribution of the following assets to Josh. $\begin{array}{lrr}&\text { Partnership's Basis in Asset} &\text { Asset's Fair Market Value }\\\text { Cash } & \$ 70,000 & \$ 70,000 \\\text { Inventory } & 120,000 & 150,000\end{array}$
a. Calculate Josh's recognized gain or loss on the liquidating distribution, if any, and his basis in the distributed inventory.
How would your answer to
a. change if the partnership also distributed a small parcel of land it
b. had held for investment to Josh? Assume the land has a $5,000 adjusted basis FMV is $8,000)
to the partnership.

Understand the allowance method of accounting for bad debts and its impact on financial statements.

Become familiar with the process of recognizing the income and expense related to notes receivable.

Grasp the concepts and accounting treatments for the direct write-off and allowance methods for uncollectible accounts.

Understand the concept of a maturity date for a note receivable and how to calculate it.

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