21 Points Missed (___) Score ACCT 751 - FALL 2012 Quiz 2 Name ______________________________________________ (I attest that I worked independently on this quiz)

This quiz is due on Monday 10/1, by 2:30 pm. You are to work independently. You must show your work (and explain your position where necessary) to receive any credit (the correct answer will be graded a zero if work is not shown). 1. Mary, Meagan, and Kelsey decide to merge their accounting practices. The following assets and/or services are contributed to the MMK partnership.
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Name Mary Meagan Kelsey

Description of Property Accounts Receivable Equipment (original cost of $200,000) Land Cash Services

FMV $100,000 $220,000 $200,000 $50,000 ???

Basis $ -0$40,000 $220,000 $50,000

Debt N/A $120,000 N/A N/A

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In return for their contributions, Mary and Meagan receive a 40% interest and Kelsey receives a 20% unrestricted interest. Assume that under state law, the partnership assumes the debt (becomes the primary obligor). Also, the services to be rendered by Kelsey will be to the partnership over the next year. As a result of the partnership formation, compute the following assuming there is no IRC Section 754 election (not yet covered in class). 1. Gain or loss recognized (if any) by Mary. Indicate the character of the gain or loss (2 points).

2.

Gain or loss recognized (if any) by Kelsey. Indicate the character of the gain or loss (2 points).

3.

Gain or loss recognized (if any) by the MMK partnership under current law (not proposed reg.) (2 points).

4.

Basis of the Equipment in the hands of the partnership (not proposed reg.) (2 points).

5.

Basis of Meagan's interest immediately after formation (2 points).

6. 7.

Gain or loss recognized (if any) by the MMK partnership under the proposed regulations (1 point). Gain or loss recognized (if any) by Mary if the entity had been a corporation (1 point).

8.

Gain