Question

At June 30, Year 1, Burns and Cooper were equal partners in a partnership with net assets having a tax basis and fair market value of $100,000. On July 1, Year 1, Todd contributed securities with a fair market value of $50,000 (purchased 10 years ago at a cost of $35,000) to become an equal partner in the new firm of Burns, Cooper, and Todd. The securities were sold on December 15, Year 2, for $65,000. How much of the partnership's capital gain from the sale of these securities should be allocated to Todd? a$10,000 b$15,000 c$20,000 d$5,000

Answer 1

Answer :-

Net assets fair market value is $1,00,000

Now Todd Contribute Securities FMV $50,000 where 10 yrs ago cost $35,000

So Now Three Partners Net Assets = $1,00,000 + $35,000 / 3

= $ 1,35,000 / 3

= $45,000

So Burns had $45,000

Cooper had $45,000

Todd had $45,000

Now, The securities were sold on December 15, Year 2, for $65,000.

So Capital gain on sale of securites to be allocated to Todd is $65,000 - $45,000 = $20,000

So Answer is (c) $20,000