Required information [The following information applies to the questions displayed below.] Carrie D'Lake, Reed A. Green, and Doug A. Divot share a passion for golf and decide to go into the golf club manufacturing business together. On January 2, 2022, D'Lake, Green, and Divot form the Slicenhook Partnership, a general partnership. Slicenhook's main product will be a perimeter-weighted titanium driver with a patented graphite shaft. All three partners plan to actively participate in the business. The partners contribute the following property to form Slicenhook: Partner Carrie D'Lake Contribution Land, FMV $ 468,000 Basis $ 468,000, Mortgage $ 68,000 Cash Cash $ 400,000 $ 400,000 Reed A. Green Doug A. Divot Carrie had recently acquired the land with the idea that she would contribute it to the newly formed partnership. The partners agree to share in profits and losses equally. Slicenhook elects a calendar year-end and the accrual method of accounting. In addition, Slicenhook received a $1,596,000 recourse loan from Big Bank at the time the contributions were made. Slicenhook uses the proceeds from the loan and the cash contributions to build a state-of-the-art manufacturing facility ($1,240,000), purchase equipment ($624,000), and produce inventory ($416,000). With the remaining cash, Slicenhook invests $53,000 in the stock of a privately owned graphite research company and retains ($63,000) as working cash. Slicenhook operates on a just-in-time inventory system so it sells all inventory and collects all sales immediately. That means that at the end of the year, Slicenhook does not carry any inventory or accounts receivable balances. During 2022, Slicenhook has the following operating results: Sales Cost of goods sold Interest income from tax-exempt bonds Qualified dividend income from stock Operating expenses Depreciation (tax) $179 on equipment Equipment Building $ 1,158,000 416,880 980 1,740 134,000 $ 39,000 89,000 32,000 Interest expense on debt 160,000 200,000 The partnership is very successful in its first year. The success allows Slicenhook to use excess cash from operations to purchase $39,000 of tax-exempt bonds (you can see the interest income already reflected in the operating results). The partnership also makes a principal payment on its loan from Big Bank in the amount of $300,000 and a distribution of $100,000 to each of the partners on December 31, 2022. The partnership continues its success in 2023 with the following operating results: Sales Cost of goods sold Interest income from tax-exempt bonds Qualified dividend income from stock Operating expenses Depreciation (tax) Equipment Building Interest expense on debt $ 1,572,000 550,550 980 1,740 148,000 $ 163,000 70,000 233,000 112,000 The operating expenses include a $2,200 trucking fine that one of its drivers incurred for reckless driving and speeding and meals expense of $6,000 (the meals were not provided by a restaurant). By the end of 2023, Reed has had a falling out with Carrie and Doug and has decided to leave the partnership. He has located a potential buyer for his partnership interest, Indie Ruff. Indie has agreed to purchase Reed's interest in Slicenhook for $858,000 in cash and the assumption of Reed's share of Slicenhook's debt. Carrie and Doug, however, are not certain that admitting Indie to the partnership is such a good idea. They want to consider having Slicenhook liquidate Reed's interest on January 1, 2024. As of January 1, 2024, Slicenhook has the following assets: Cash Investment-tax exempts Investment stock Equipment-net of depreciation Building-net of depreciation Land Total Tax Basis FMV $ 892,800 34,000 $ 892,800 39,000 85,000 349,000 1,178,000 500,000 $ 3,043,800 85,000 624,000 1,600,000 590,000 $ 3,825,800 Carrie and Doug propose that Slicenhook distribute the following to Reed in complete liquidation of his partnership interest: Cash Investment stock Equipment-$200,000 cost, net of depreciation Total Tax Basis $ 493,000 85,000 112,600 FMV $ 493,000 85,000 280,000 $ 690,600 $ 858,000 Slicenhook has not purchased or sold any equipment since its original purchase just after formation. f. What are Carrie's, Reed's, and Doug's bases in their partnership interest at the end of 2022 and 2023? Basis at 12/31/22 Basis at 12/31/23 D'Lake Green Divot g-1. If Reed sells his interest in Slicenhook to Indie Ruff, what are the amount and character of his recognized gain or loss? g-2. What is Indie's basis in the partnership interest? Complete this question by entering your answers in the tabs below. Required G1 Required G2 If Reed sells his interest in Slicenhook to Indie Ruff, what are the amount and character of his recognized gain or loss? $205,997 ordinary income and $91,667 capital gains $95,373 ordinary income and $91,667 capital loss $205,997 capital loss and $95,373 ordinary income $91,667 ordinary income and $205,997 capital gains Neither gain nor loss recognized Required G2 > Required: h-1. If Reed sells his interest in Slicenhook to Indie Ruff, what is Indie's inside basis in Slicenhook? h-2. What effect would a 754 election have on Indie's inside basis? Complete this question by entering your answers in the tabs below. Required H1 Required H2 If Reed sells his interest in Slicenhook to Indie Ruff, what is Indie's inside basis in Slicenhook? Indie's inside basis < Required H1 Required H2 > Required H1 Required H2 What effect would a 754 election have on Indie's inside basis? Special basis adjustment < Re Required H2> Increase Decrease None i-2. If Slicenhook distributes the assets proposed by Carrie and Doug in complete liquidation of Reed's partnership interest, what is Reed's basis in the distributed assets? Complete this question by entering your answers in the tabs below. Required 11 Required 12 If Slicenhook distributes the assets proposed by Carrie and Doug in complete liquidation of Reed's partnership interest, what is Reed's basis in the distributed assets? Note: Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount. Cash Investment in stock Equipment Basis j-1. If Reed sells his interest, what is his after-tax cash? Assume his ordinary marginal tax rate is 35 percent and his capital gains tax rate is 15 percent. j-2. If Slicenhook distributes the assets proposed by Carrie and Doug in complete liquidation of Reed's partnership interest and Reed were to immediately sell the distributed assets, what is his after-tax cash? Assume his marginal tax rate is 35 percent and his capital gains rate is 15 percent. Complete this question by entering your answers in the tabs below. Required J1 Required J2 If Reed sells his interest, what is his after-tax cash? Assume his ordinary marginal tax rate is 35 percent and his capital gains tax rate is 15 percent. Cash after tax Complete this question by entering your answers in the tabs below. Required J1 Required J2 If Slicenhook distributes the assets proposed by Carrie and Doug in complete liquidation of Reed's partnership interest and Reed were to immediately sell the distributed assets, what is his after-tax cash? Assume his marginal tax rate is 35 percent and his capital gains rate is 15 percent. Note: Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount. Cash after tax Show less