Question

In Year 1 Eukalade and Isonoe formed Middle Moons Partnership

·       Eukalade contributed land with an adjusted basis of $146,000 and a fair market value of $119,000. The land was capital in nature to Eukalade and held as a capital asset by the partnership.

·       Isonoe contributed depreciable equipment with an adjusted basis of $251,000 and a fair market value of $194,000. The equipment was capital in nature to Isonoe and held as a capital asset by the partnership

·       Eukalade had a 13% capital and profits interest and the remainder belonged to Isonoe.

·       In year 6 the partnership sold the equipment for $228,000.

How much of the gain or loss will be allocated to Isonoe? (If the amount is a loss, enter the number with a “-“ sign before it.)

Answer 1

In year Eulalade and Isonoe formed Middle Moons Partnership firm. Eukalade contributed Land to partnship having fair value of $119000 and Isonoe contributed Equipment to the partnership having fair value of $194000.

Now, in yera 6, Equipment is sold for $228000.

When the Partnership firm was started, the equipment was recorded at its fair market value of $194000. Now, it is sold, thereby giving a profit of 228000 - 194000= $34000.

Journal entry for the sale would be:-

Cash a/c Dr. 228000

To Equipment a/c 194000

To Gain on sale of Equipment 34000

Now, it is also given that Eukalade has an interest of 13% in the partnership and therefore remaining 87% belongs to Isonoe. Therefore amount of gain to be allocated to Isonoe is (34000 x 87%) = $29850.

Note:-

Depriciation on equipment is not provided in the question and therefore not taken into account while calculating profits.