Question

Don and Warren formed an equal partnership to build drag-racing vehicles. Don contributed $5,000 in cash, and Warren contributed a truck with a fair market value of $5,000 and an adjusted tax basis of $4,500. They plan to use the truck for hauling parts and cars. When Warren purchased the truck 1 year earlier, he elected to use the straight line method to depreciate the truck using the mid-year convention over its 5-year recovery period. The partnership should

Answer 1

Answer: Record the truck on the books at $4,500 and depreciate it over its remaining recovery period using the straight line method and mid-year convention.

Explanation:

A partnership occurs when two or more people come together and join resources together, make management decisions, share profit and losses and have a common goal towards the achievement of organizational goals.

Based on the information given, the partnership should record the truck on the books at $4,500 which is the adjusted tax basis and then depreciate it over its remaining recovery period using the straight line method and the mid-year convention.