Problem 21-39 (LO. 5)

Browne and Red, both C corporations, formed the BR Partnership on January 1, 2018. Neither Browne nor Red is a personal service corporation, and BR is not a tax shelter. BR's gross receipts were $22 million, $25 million, $31 million, and $32 million, respectively, for the four tax years ending in 2018, 2019, 2020, and 2021.

Indicate the methods of accounting available to BR in each tax year.

Problem 21-43 (LO. 7, 8, 11)

Phoebe and Parker are equal members in Phoenix Investors, LLC. They are real estate investors who formed the LLC several years ago with equal cash contributions. Phoenix then purchased a parcel of land. Phoenix holds all land for investment.

On January 1 of the current year, to acquire a one-third interest in the entity, Reece contributed to the LLC some land she had held for investment. Reece purchased the land five years ago for $120,000; its fair market value at the contribution date was $90,000. No special allocation agreements were in effect before or after Reece was admitted to the LLC. A few years later, Phoenix sold the land contributed by Reece for $84,000.

Immediately before Reece's property contribution, the balance sheet of Phoenix Investors, LLC, was as follows:

	Basis			FMV			Basis			FMV
Land	$30,000			$180,000		Phoebe, capital	$15,000			$90,000
						Parker, capital	15,000			90,000
	$30,000			$180,000		Total	$30,000			$180,000

a. Regarding the land sale, how much is recognized and how is it allocated?

On the land sale, under 704(c), $ of unrealized gain or loss at the contribution date on property contributed for an LLC interest is allocated to .

b. Complete the balance sheet reflecting basis and fair market value for the LLC immediately after the land sale.

Assets	Basis	FMV	Partners' Capital	Basis	FMV
Cash	$	$	Interest, Phoebe	$	$
Land	$	$	Interest, Parker	$	$
			Interest, Reece	$	$
	$	$		$	$

c. Prepare schedules that roll the partners' capital accounts forward from before to immediately after the sale. Prepare two schedules: tax basis and fair market value.

If an amount is none, enter "0".

		Total	Phoebe	Parker	Reece
Balance before sale		$	$	$	$
Less: Built-in loss on land		$	$	$	$
Less: Loss on land after
	contribution date	$	$	$	$
Balance after sale		$	$	$	$

Prepare the schedule that shows the computation of the fair market value of each LLC member's capital account.

		Total	Phoebe	Parker	Reece
Before sale		$	$	$	$
Less: Loss on land after
	contribution date	$	$	$	$
Balance after sale		$	$	$	$