High School

Margaret sells her one third interest in FP Partnership for 250000 cash. At the time of the sale, the BS was as follows: Basis Cash 375000 AR 0 INventory 15000 Stock 33000 FMV 375000 45000 30000 300000 Capital Basis 240000 Margaret 240000 Mya 240000 Terrence FMV 250000 250000 250000. Determine the amount and character of gain recognized by Margaret.

Answer :

Margaret recognizes a $10,000 capital gain from the sale of her one-third interest in FP Partnership. The character of the gain is capital in nature.

Margaret sells her one-third interest in FP Partnership for $250,000 cash. To determine the amount and character of the gain recognized, we first need to calculate her adjusted basis in the partnership.

Since Margaret's capital account is equal to $240,000, her basis in the partnership interest is also $240,000.

The gain recognized by Margaret is calculated as follows:

  • Selling Price: $250,000
  • Minus Adjusted Basis: $240,000
  • Gain Recognized: $10,000

The character of this gain depends on the nature of the partnership's assets. In this case, since FP Partnership seems to have cash, accounts receivable (AR), inventory, and stock, and assuming no special rules apply about unrealized receivables or inventory items, the entire gain of $10,000 would generally be recognized as a capital gain.

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