Reference no: EM133151333

Question - Oscar, Felix, and Marv are all one-third partners in the capital and profits of Eastside general partnership. In addition to their normal share of the partnership's annual income, Oscar and Felix receive annual guaranteed payments of $7,000 to compensate them for additional services they provide. Eastside's income statement for the current year reflects the following revenues and expenses:

Sales revenue $420,000

Dividend income 5,700

Short-term capital gains 2,800

Cost of goods sold (210,000)

Employee wages (115,000)

Depreciation expense (28,000)

Guaranteed payments (14,000)

Miscellaneous expenses (9,500)

Overall net income $52,000

In addition, Eastside owed creditors $120,000 at the beginning of the year but managed to pay down its debts to $90,000 by the end of the year. All partnership debt is allocated equally among the partners. Finally, Oscar, Felix and Marv had a tax basis of $80,000 in their interests at the beginning of the year.

Assume that all partners began the year with a tax basis of $10,000. The partnership managed to pay the $120,000 debt in full on the last day of the year (the partnership had no liabilities at the end of the year). How much gain will the partners recognize when the debt is paid off? What tax basis do the partners have in their partnership interests at the end of the year? Be specific and clearly show each adjustment to basis.