Question

Dennis, Suzy, and Katherine form a partnership. Dennis and Suzy give equipment and a building, respectively. Katherine agrees to perform all of the accounting and office work in exchange for a 10% interest.

FMV Basis Partnership % Dennis’s equipment $ 52,500 $ 10,500 45%

Suzy’s building $ 52,500 $ 42,000 45%

Katherine’s services $ 0 $ 0 10%

What amount of gain, if any, do each of the partners recognize?

What is the basis for each partner in his or her partnership interest?

What is the basis to the partnership of each asset?

Answer 1

(a) Dennis introduced equipment

cost of equipment FMV $ 52500

Less - Book value $ 10500

Gain on equipment $ 42,000

SUZY introduced Building

fair market value of Building $ 52500

Less Book value $ 42000

$ 10500

Total gain on assets = 10500 + 42000 = 52500

( b ) Dennis share in partnership 45%

SUZY share in partenership 45%

Katherine Share on partnership 10%

Dennies , SUZY and Katherine share profit and losses in the ratio of 45 : 45 : 10

i.e nothing but 9 : 9 : 2

( c ) Dennie's Share of Income = 52500 x 9 / 20 = $ 23625

SUZY share in partenership = 52500 x 9 / 20 = $ 23625

Katherine Share of Income = 52500 x 2 / 20 = $ 5250