dams, a general contractor, Brinks, an architect, and Carson, an interior decorator, formed the Dex Home Improvement General Partnership by contributing the assets as follows:
Adams: Cash; A.B $40,000; FMV 40,000; % of Partner Share in Capital Profits and Losses 50%
Brinks: Land; A.B $12,000; FMV $21,000; % of Partner Share in Capital Profits and Losses 20%
Carson Inventory; A.B $24,000; FMV $24,000; % of Partner Share in Capital Profits and Losses 30%
The land was a capital asset to Brinks, subject to a $5,000 mortgage, which was assumed by the partnership.
Brinks' initial basis in Dex is:
A. $21,000.
B. $12,000.
C. $8,000.
D. $5,000.
The correct answer is C.
When a general partnership is formed and a partner contributes property to the partnership subject to a liability which is assumed by the partnership, the contributing partner's basis is calculated as follows:
Carryover Basis of Land Contributed by Brinks $12,000
LESS: Mortgage Assumed
by the Partnership – 5,000
$ 7,000
ADD: 20% of Mortgage Kept
by Brinks
(.20 x $5,000) + 1,000
Brink's Initial Basis $ 8,000
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Or $12,000 carryover basis of land contributed by Brinks minus (.80 × $5,000) liability assumed by the other partners.
I thought you ADDED to the partner's basis the liability assumed by others…what am I missing here?
BEC: 73, 81
AUD: 85
FAR: 71, 77
REG: 74, 75...finally DONE! 😀
*This is my 2nd attempt at the CPA exam. For all of you who have failed this exam many times, given up on it, or taken a break like me, remember that it is still possible to finish what you started...failure is the opportunity to begin again more intelligently 🙂
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