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 75,000 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?

Answer 1

Answer: Capital gain recognized = $10000

Ordinary Income recognized = $25000

Explanation:

Since Pamela is a 1/3 partner, we should note that her share of the unrealized receivables will be 1/3 of the unrealized receivables and this will be:

= 1/3 × $75000

= $25000

Therefore, $25,000 of ordinary income will be recognized by Pamela and the capital gain will be:

= $35000 - $25000

= $10,000