Determine the types and amounts of income that Paul and John must report as a result of the sales of partnership interest, based on information included in the exhibits.

Select from the option list provided the type of income that Paul and John must report. Each choice may be used once, more than once, or not at all.

Then, enter the appropriate amount in the associated cell for each item. If the amount is zero, enter a zero (0). Round all amounts to the nearest whole dollar.

Type Amount 123 1.-2. Paul E 123 123 3.-4. John 123 Select an option below Short-term capital gain Short-term capital loss Long-term capital gain Long-term capital loss O Ordinary income RESET CANCEL ACCEPT Email from Randy Jaegar To: Tyler Hudson, Partner From: Randy Jaegar, Partner Date: January 3, Year 4 RE: Sale of Partnership Interest Tyler, I'm very sorry to hear about Paul leaving. He was a great asset for this company and he will be sorely missed. Even stranger though, John Beal just handed me his letter of resignation and informed me that he, too, sold his entire 10% interest in Arrakis on December 31, Year 3. As of the date of the sale, John had an adjusted basis in the partnership of $30,000. According to the records in front of me, John became a partner exactly one year ago today on January 3, Year 3. John did not seem overly excited like Paul, per your description; however, he did mention that he sold his interest for $50,000 to a party known as Lenina. Similarly, we should expect to hear from Lenina before the end of the week. Regards, Randy Email from Tyler Hudson To: Randy Jaegar, Partner From: Tyler Hudson, Partner Date: January 3, Year 4 RE: Sale of Partnership Interest Hey Randy. I just got off of the phone with Paul Ludden who had some surprising news for me. Apparently, on December 31, Year 3, Paul sold his entire 35% interest in Arrakis. According to our records, Paul's interest at that date had an adjusted basis of $115,000, and he has been a partner here since Year 1. Additionally, Paul must have been overly excited because he let it slip that he sold his interest for $175,000. He told me that we should be expecting a phone call from the new partner, Leto, in a couple of days. Hopefully we can transition smoothly before work gets too crazy later on this year. I'll let you know if I hear anything more from Paul. Sincerely, Tyler Fair Value of Assets 12/31/Year 3 To: Tyler Hudson, Partner From: Adam Crenshaw, Owner, Adam's Appraisals Date: January 5, Year 4 RE: Appraisal of Assets Tyler, Here is the report for the appraisals that my team and I have conducted over the past couple of weeks. If you have any questions or concerns, please let me know. Fair Value Appraisal as of December 31, Year 3 Cash $60,000 Receivables $52,000 Inventory $75,000 Land $150,000 Thank you for using Adam's Appraisals. We look forward to serving you again in the near future. Sincerely, Adam Crenshaw Partial Balance Sheet X Arrakis Partnership Partial Balance Sheet (adjusted basis) for Year ended December 31, Year 3 Current Assets: Cash Receivables Inventory Total Current Assets: Noncurrent Assets: Land Total Assets: $ 60,000 45,000 60,000 $165,000 $100,000 $265,000