Randy Owns a One-Fourth Capital and Profits Interest in the Calendar-Year

question 90

Essay

Randy owns a one-fourth capital and profits interest in the calendar-year RUSR Partnership. His adjusted basis for his partnership interest was $200,000 when he received a proportionate nonliquidating distribution of the following assets:
Partnership's Basis in Asset Asset's Fair Market Value
Cash $120,000 $120,000
Inventory 60,000 90,000
a. Calculate Randy's recognized gain or loss on the distribution, if any. Explain.
b. Calculate Randy's basis in the inventory received.
c. Calculate Randy's basis for his partnership interest after the distribution.

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Definitions:

Closing Entry Process

The procedure used at the end of an accounting period to transfer balances from temporary accounts to permanent accounts, clearing the temporary accounts for the next period.

Permanent Accounts

Permanent Accounts are balance sheet accounts whose balances are carried forward from one accounting period to the next, including assets, liabilities, and equity accounts.

Owner's Capital Account

An equity account on the balance sheet representing the owner's total investment in the business minus any withdrawals.

Temporary Accounts

Accounts that are closed at the end of each accounting period; examples include revenue, expense, and dividend accounts.