Question

he SSC, a cash-method partnership, has a balance sheet that includes the following assets on December 31 of the current year: Basis FMV Cash $ 180,000 $ 180,000 Accounts receivable 0 60,000 Land 90,000 120,000 Total $ 270,000 $ 360,000 Susan, a one-third partner, has an adjusted basis of $90,000 for her partnership interest. If Susan sells her entire partnership interest to Emma for $120,000 cash, how much capital gain and ordinary income must Susan recognize from the sale

Answer 1

$10,000 capital gain; $20,000 ordinary income

Step-by-step explanation:

Calculation to determine how much capital gain and ordinary income must Susan recognize from the sale

Calculation for ORDINARY INCOME

Using this formula

Ordinary income=(

Unrealized receivables × Interest)

Let plug in the formula

Ordinary income=($60,000*1/3)

Ordinary income=$20,000

Calculation for CAPITAL GAIN

Using this formula

Capital gain= Total gain -Ordinary income

Let plug in the formula

Capital gain=$30,000-$20,000

capital gain=$10,000

Therefore the capital gain and ordinary income that Susan must recognize from the sale are:

$10,000 capital gain; $20,000 ordinary income