BPA Partnership Is an Equal Partnership in Which Each of the Partners

question 24

Essay

BPA Partnership is an equal partnership in which each of the partners has a basis in her partnership interest of $20,000. BPA reports the following balance sheet:
$$\begin{array} { | l | r | r | } \hline & \text { Basis } & \text { FMV } \\\hline \text { Inventory } & \$ 40,000 & \$ 60,000 \\\hline \text { Land } & \underline { 20,000 } & \underline { 30,000 } \\\hline \text { Total } & \$ 60,000 & \$ 90,000 \\\hline\end{array}$$ a. Identify the hot assets if Brooke decides to sell her interest in BPA.
b. Are these assets "hot" for purposes of distributions?
c. If BPA distributes the land to Brooke in complete liquidation of her partnership interest, what tax issues should be considered?
$$\begin{array} { | l | r | } \hline \text { Brooke, capital } & \$ 20,000 \\\hline \text { Penelope, capital } & 20,000 \\\hline \text { Amanda, capital } & \underline { 20,000 } \\\hline \text { Total } & \$ 60,000 \\\hline\end{array}$$

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Definitions:

Prior Service Cost

Costs that arise when a pension plan is amended to increase benefits for employee service provided in prior periods, recognized over the service periods of affected employees.

Unrecognized Prior Service Cost

Costs associated with retroactive benefits granted in pension plans, which are not immediately recognized as an expense but are amortized over time.

Years-Of-Future-Service Method

An actuarial technique used to calculate pension benefits, taking into account the expected years of service remaining for an employee.

Defined Benefit Pension Plan

A retirement plan where employee benefits are calculated using a formula that considers several factors, such as length of employment and salary history, with the employer bearing the investment risk.