On May 31, six brothers decided to form the Grimm Brothers
Partnership to publish and print children’s stories. The contributions of the brothers and
their partnership interests are listed below. They share the economic risk of loss from li-abilities according to their partnership interests.
Individual Asset
Basis
to Partner FMV
Partnership
Interest
Al Cash $15,000 $ 15,000 15%
Bob Accounts receivable –0– 20,000 20%
Clay Office equipment 13,000 15,000 15%
Dave Land 50,000 15,000 15%
Ed Building 15,000 150,000 20%
Fred Services ? 15,000 15% The following other information about the contributions may be of interest:
• Bob contributes accounts receivable from his proprietorship, which uses the cash
method of accounting.
• Clay uses the office equipment in a small business he owns. When he joins the partner-ship, he sells the remaining business assets to an outsider. He has claimed $8,000 of
MACRS depreciation on the office equipment.
• The partnership assumes a $130,000 mortgage on the building Ed contributes. Ed
claimed $100,000 of straight-line MACRS depreciation on the commercial property.
• Fred, an attorney, drew up all the partnership agreements and filed the necessary pa-perwork. He receives a full 15% capital and profits interest for his services