Reference no: EM131643454

Question 1 - The Mark and Richard Partnership owns the following assets on October 1 of the current year:

Assets	Partnership's Basis	FMV
Cash	$67,200	$67,200
Receivables	16,800	16,800
Inventory	25,200	31,800
Machinery*	246,000	356,000
Land	48,100	100,400
Total	$403,300	$572,200

*Sale of machinery for its FMV would result in $70,000 of §1245 depreciation recapture. Thus, the machinery's FMV and original cost are the same numerical value $356,000.

a. Which partnership items are unrealized receivables?

b. Is the partnership's inventory substantially appreciated?

c. Assume the Mark and Richard Partnership has no liabilities and Mark's basis in his partnership interest is $107,625. On October 1 of the current year, Mark receives a $ 35,000 current distribution in cash, which reduces his partnership interest from one- fourth to one-fifth. What are the tax results of the distribution (i. e., the amount and character of any gain, loss, or income recognized and Mark's basis in his partnership interest)?

Question 2 - Melinda is a shareholder in a calendar year S corporation. At the beginning of the year, her stock basis is $20,000, her share of AAA (accumulated adjustment account) is $4,000, and her share of corporate AEP (accumulated earnings & profit) is $10,000. She receives a $12,000 distribution, and her share of S corporation items includes a $4,000 long-term capital gain and $18,000 ordinary loss. Determine the effects of these events on AAA, stock basis, and AEP

Davis is a 50% shareholder in Babylon Corporation which is an S corporation. The S corporation had a $30,000 ordinary loss last year and $10,000 of ordinary income this year. Before accounting for last year's losses, Davis' basis in his Babylon stock is $20,000 and Babylon owed Davis $2,000 (an unsecured note having a basis of $2,000) at the end of last year. In addition, Babylon had $50,000 of other liabilities owed to creditors other than Davis at the end of last year. What income and loss must Davis report on his current return as a result of owning the Babylon stock (ignoring the at-risk and passive activity limitations)?

Question 3 - The LMN Partnership has the following balance sheets at December 31:

	Basis	FMV
Cash	$46,000	$46,000
Accounts Receivable	0	125,000
Inventory	46,000	104,000
Land	400,000	265,000
	$492,000	$540,000
Capital, L	$164,000	$180,000
Capital, M	164,000	180,000
Capital, N	164,000	180,000
	$492,000	$540,000

On that date, N sells his interest in the partnership to unrelated buyer Y for $180,000.

a. How much gain or loss will N recognize in connection with the sale to Y?

b. What will be the character of N's gain or loss?