Federal Income Tax Business 2019 Chapter 11

LO.7,9Diana, a partner in the cash basis HDA Partnership, has a one-third interest in partnership profits and losses. The partnership's balance sheet at the end of the current year is as follows.

Basis FMV Basis FMV

Cash $120,000 $120,000 Hannah, capital $90,000 $250,000

Receivables $0 $240,000 Diana, capital $90,000 $250,000

Land $150,000 $390,000 Alexis, capital $90,000 $250,000

Total $270,000 $750,000 Total $270,000 $750,000

Diana sells her interest in the HDA Partnership to Kenneth at the end of the current year for cash of $250,000.

A) How much income must Diana report on her tax return for the current year from the sale? What is its nature?

B) If the partnership does not make an optional adjustment-to-basis election, what are the type and amount of income that Kenneth must report in the next year when the receivables are collected?

C) Refer toExample 34. Describe how an out-of-balance situation arises and is resolved for Diana'ssaleof a partnership interest. (Note thatExample 34relates to adistributionthat causes an out-of-balance situation.) Prepare a Microsoft Excel worksheet that illustrates the out-of-balance situation and how a 754 adjustment can restore balance. Use the intuitive approach to allocate any step-up to partnership assets.Hint:You'll need to significantly modify the format for this situation.

D) If the partnership did make an optional adjustment-to-basis election, what are the type and amount of income that Kenneth would report in the next year when the receivables are collected? If the land (which is used in the HDA Partnership's business) was sold for $420,000? Assume that no other transactions occurred that year.

I need help creating the worksheet to illustrate the out-of-balance situation.