Problem 11-38 (LO. 2, 8, 10) Diana, 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 90,000 250,000 250,000 Land 150,000 90,000 390,000 Alexis, capital $750,000 Total Total $270,000 $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. If an amount is zero, enter "0". a. How much income must Diana report on her tax return for the current year from the sale? What is its nature? Diana will report ordinary income of $ 80,000 V and capital gains of $ 80,000 from the sale. c. Refer to Example 34 in the textbook. Describe how an out-of-balance situation arises and is resolved for Diana's sale of a partnership interest. Allocate any basis step-up to partnership assets. Hint: You'll need to significantly modify the format for this situation. On the sale of a partnership interest, the new partner's capital account should equal the amount paid for the interest The sale of a partnership interest is external to the partnership and, absent a $ 754 adjustment/election, does not change the partnership's basis in its assets. If a $ 754 adjustment is made regarding the sale to Kenneth, both inside and outside bases total 0X. Feedback Check My Work 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 if (1) the receivables are collected and (2) the land (which is used in the HDA Partnership's business) was sold for $420,000? Assume no other transactions occurred that year. Kenneth will recognize $ o ordinary income from the receivables and $ 0 X of possible 5 1231 gain from the land sale. Because a $ 754 election was made, Kenneth is entitled to a special adjustment under $ 743(b) of s 0 X