Question

A partnership has the following assets. The book basis ans tax basis are the same amount....

A partnership has the following assets. The book basis ans tax basis are the same amount.

Asset Basis Value

Cash $3,000 $3,000

Machine $10,000 $10,000

Accounts Payable $8,000 $8,000

Note Payable $15,000 $15,000

Total $36,000 $36,000

If the note payable is a recourse mortgage on the machine, what is the amount of the minimum gain?

A. $0

B. $5,000

C. $10,000

D. $13,000

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Answer #1

Option A is correct

Gain is 0

Explanation : it is the recourse debt it extends to all the assets of the borrower. In this case the creditor have a right to recover the full loan amount from the personal assets of the borrower . So the gain is zero.

If it is the nonrecourse ,the creditors right of recovery is limited to that particular asset securing liability only. In this case creditor may not have a right to recover additional amount other than the asset securing liability ,it he sold it less than the loan amount.

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