Allison and Taylor Form a Partnership by Each Making Contributions

question 8

Essay

Allison and Taylor form a partnership by each making contributions of $90,000 cash to partnership capital. The partnership purchases an asset for $600,000, using the cash and financing the rest with a $420,000 recourse note. Allison is allocated 75% of partnership profits and losses until the date when the total partnership profits exceed total partnership losses. After that date, the profits and losses are shared equally between the two partners. The partners expect the partnership to have losses for the first three years of operations and profits thereafter. How will the recourse debt be shared between the partners for basis purposes immediately after the property is acquired?

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Definitions:

ABC Analysis

A method for dividing on-hand inventory into three classifications based on annual dollar volume.

Tightly Controlled

Describes systems or processes that are managed with strict regulations or rules to ensure desired outcomes.

Setup Time

The duration required to prepare or adjust equipment before a production process begins, minimizing this time can increase efficiency.