ACCT 540 Assignment 8

Mary and Todd form the MT Partnership, with a transfer of the following properties:

Mary $2,300,000 cash

Todd $2,300,000 FMV property

$1,100,000 tax basis

Both Mary and Todd receive a 50% interest in the partnership. They have an agreement that allocates all profits and losses 50% to each member. They also have language in their partnership agreement that satisfies the alternate test for economic effect.

REQUIRED:

Show the book (704b) and tax basis capital account entries for both Mary and Todd at formation of the partnership.

Assume that Todds contributed property is later sold for $4,800,000. No depreciation deductions were claimed. Show the allocation of the book and tax gain from this sale, and explain which one will be reflected on the tax return of the partnership.