X, a cash basis partnership, has the following balance sheet items before any of the following transactions are entered into.

Assets

Basis FMV

Cash ........................................................................................................................ $200,000 $200,000

Inventory ................................................................................................................. 100,000 100,000

Equipment ............................................................................................................. 400,000 750,000

Accumulated depreciation ........................................................................... (200,000) (200,000)

Total Assets ......................................................................................................... $500,000 $850,000

Liabilities and Capital

Recourse debt ........................................................................................................................ $400,000 $400,000

Nonrecourse debt ................................................................................................................. 20,000 20,000

Partner A, capital ..................................................................................................................... 8,000 43,000

Partner B, capital .................................................................................................................... 8,000 43,000

Partner C, capital ..................................................................................................................... 16,000 86,000

Partner D, capital ..................................................................................................................... 48,000 258,000

Total ................................................................................................................................... $500,000 $850,000

Partners C and D are general partners, and partners A and B are limited partners. Profits and losses are allocated 10% each to A and B, 20% to C, and 60% to D. Partnership X has a 754 election in effect. Assume that inside and outside bases are equal for all partners.

Assume A sells his 10% partnership interest to E for $43,000. Compute the following, showing your work.

a. Gain recognized by A

b. Character of the gain recognized by A

c. E's basis in the partnership

d. The 743 (b) adjustment and how it will be allocated