Marty (M) retires from MNO partnership, an accounting firm. The partnership has the following balance sheet:
Asset FMV AB Liab/Equity FMV AB
Cash $240,000 $240,000 Capital,M $300,000 $100,000
Accounts rec. $300,000 $0 Capital N $300,000 $100,000
Land $360,000 $60,000 Capital O $300,000 $100,000
Total $900,000 $300,000 Total $900,000 $300,000
The partnership pays Marty $150,000 a year for 2 years.
a. What are the consequences to Marty in Year 1?
b. How would the consequences in Year 1 be if instead Marty received $200,000 a year for 2 years?