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At formation of partnership AB. B contributes land ($30,000 FMV and $10,000 basis) and A contributes...

At formation of partnership AB. B contributes land ($30,000 FMV and $10,000 basis) and A contributes cash of $30,000. When the land is sold 2 years later for $42,000, A must recognize gain of gow much? A. $0, B. $6,000, C, $12,000, D. $42,000

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Answer #1
Gain on sale of land = 42000-10000 = $ 32000
Pre- Contribution Gain is (30000-10000)= $ 20000 which is 100% to be recognised in B hand.
Post - Contribution Gain is (32000-20000)= $ 12000 which shall be share in profit sharing ratio.
Gain recognized in hand of B = 20000 + (12000*50%)= $ 26000
Gain recognized in hand of A = 12000*50%= $ 6000
Hence, B option is correct.
Note: It is assumed that profit sharing ratio is 50:50.
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