Problem 21-39 (LO. 5) Browne and Red, both C corporations, formed the BR Partnership on January 1, 2

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 $ $ $ $

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