A and B are partners of the AB partnership. A has a 30% interest and B has a 70% interest. A contributed land with a basis of $20,000 and a fair market value of $70,000 and equipment with a basis of $10,000 and a fair market value of $50,000. B contributed cash of $40,000, equipment A with a basis of $100,000 and a fair market value of $70,000, and other equipment B with a basis of $90,000, fair market value of $140,000. In addition to the items listed below, assume that the partnership sold the equipment that A contributed for $60,000 and sold the A equipment that B contributed for $80,000. Assume A sells their partnership interest on the last day of the year for $120,000.

Sales $260,000

Cost of Sales $150,000

Capital Losses $ 25,000

Utilities, salaries, etc. $20,000

Charitable Contributions $ 5,000

AMT Depreciation Preference $ 12,000

Tax exempt interest income $ 7,500

Distribution to A $7,000

Distribution to B $9,000

1. Which of the above items will be separately stated?
2. What is the partnerships income/loss from operations?

3Compute each partners 704(b) account

4How much total income/loss will be allocated to A? to B?

5Prepare a reconciliation of book income and tax income. Reconcile the ending 704(b) capital account balance to ending partners capital by starting with contributions plus/minus income less distributions.

6Determine As gain or loss on the sale of the interest.