Answer: Capital gain = $10,000 ; Ordinary income = $25,000
Explanation:
Here is the complete question:
The PLM Partnership balance sheet includes the following assets on December 31 of the current year:
Basis FMV
Cash $230,000 $230,000
Accounts receivable 0 75000
Land 70,000 100,000
Total $300,000 $405,000
Pamela, a 1/3 partner, has an adjusted basis of $100,000 for her partnership interest. If Pamela sells her entire partnership interest to Emma for $135,000 cash, how much capital gain and ordinary income must Pamela recognize from the sale?
The following can be calculated based on the question above:
Pamela's share of the unrealized receivables will be the ordinary income which will be the unrealized receivables of $75000 which is then multiplied by 1/3 which is the interest. This will be:
Ordinary income = 1/3 × $75,00
= $25,000
The capital gain will be the difference that occurs between total gain and ordinary income.
Total gain difference
= $135,000 - $100,000
= $35,000
Ordinary Income = $25,000
Capital gain = $35,000 - $25,000
= $10,000
