# (Answered): On March 15, 20X9, Troy, Peter, and Sarah formed Picture Perfect general partnership. This partnership was created to sell a variety of cameras, picture frames, and othe…

On March 15, 20X9, Troy, Peter, and Sarah formed Picture Perfect general partnership. This partnership was created to sell a variety of cameras, picture frames, and other photography accessories. When it was formed, the partners received equal profits and capital interests and the following items were contributed by each partner: Troy-cash of \$3,000, inventory with a FMV and tax basis of \$5,000, and a building with a FMV of \$22,000 and adjusted basis of \$10,000. Additionally, the building was secured by a \$10,000 nonrecourse mortgage. Peter-cash of \$5,000, accounts payable of \$12,000 (recourse debt for which each partner becomes equally responsible), and land with a FMV of \$27,000 and tax basis of \$20,000. Sarah – cash of \$2,000, accounts receivable with a FMV and tax basis of \$1,000, and equipment with a FMV of \$40,000 and adjusted basis of \$3,500. Sarah also contributed a \$23,000 nonrecourse note payable secured by the equipment. What is Troy’s outside basis and how much gain (loss) must he recognize in 20X9 when Picture Perfect was formed?

Solution :- Outside basis of Troy = [ 3000 + 5000 + 10000(NOTE) – 10000 + { (10000 + 12000 + 23000) * 1 / 3 } ]

= [ 3000 + 5000 + 10000 – 10000 + { 45000 * 1 / 3 } ]

= 8000 + 15000

= \$ 23000.

Trroy will not recognize any gain or any loss at the time of the formation of Picture Perfect Partnership.

Conclusion :-

 Outside basis of Troy \$ 23000.

No gain or loss must be recognized by Troy at the time of formation of Picture Perfect Partnership.

Note :- Adjusted basis value of building amounting to \$ 10,000 will be added while calculating the outside basis of troy.

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