Dirt to dust (DD) has partnered with All in Cash (AC), with DD serving as the general partner and AC is the limited partner. AC is investing $500,000 and DD contributes no cash. The project obtains a loan for $2 million (10% interest only, nonrecourse) and purchases an apartment building for $2.5 million. Assume that year one performance results in net operating income from operations of $300,000. Debt service is $200,000 resulting in before tax cash flows of $50,000. Annual deprecation on the property is $250,000. The partnership agreement stipulates that taxable income, loss and cash flow from operations are to be split 90% to AC and 10% to DD. On sale, taxable gains or losses are to be split 50-50 between the partners. Cash proceeds are distributed first to AC in an amount equal to his original investment less any cash distributions previously received, and then split 50-50 between both parties.

1) What are the capital account balances for DD and AC after one year?

2) Assuming the apartment building is sold at the end of year 1 for $3.1 million with no expenses, how much before tax cash is available from sale?

3) How much cash would be distributed to each partner on the sale of the property?

4) How much capital gain would be allocated to both partners on the sale of the property?

5) Calculate the capital account balances for both partners after the sale.