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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11153
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Partnership A invests $ 35K into Partnership B and now Partnership

This answer was rated:

Partnership A invests $ 35K into Partnership B and now Partnership A owns 50% of Partnership B.

What is the proper way to book the investment on Partnership A's balance sheet? Asset or Equity(Capital Contribution in calculating inside/outside basis)?

Lane :

Debit Cash and credit Owner's equity. It's both (Unless you'rem paying down debt ... Then it's debit Cash, credit the liability)

Lane :

The partnership's basis in its assets for tax purposes is called the inside basis. The outside basis is the value of the partner's interest in the partnership. The outside basis consists of the partner's capital account for tax purposes and the partner's share of partnership liabilities. The inside basis for the partnership is generally equal to the total of each partner's outside basis.

Customer:

Maybe I should simplify my question:

Lane :

Inside basis will allocate that investment to, say, equipment, or the depreciater val of abuilding ... but what you've describesw is really just an outside basis issue (this partner;s interest in the partnership

Lane :

k

Lane :

still with me?

Customer:

When Partnership A is investing in and writing checks to Partnership B for investment expense in wells - The JE on Partnership A's books should be Credit the bank and debit what? Asset (Investment in Wells) or Capital Contribution in Equity?

Lane :

the Capital account ... unless you want it to look as if Partnership A actually has the well expense

Lane :

Ideally this should credit cash (bank) and debit capital. Then for Ptnr B (if the wells aren't a capit l asset) ... Ptnrship B take the expense

Customer:

Perfect, this is what I was looking for. I picked up an account that had the investment listed as an asset and I thought it belonged in equity.

Lane :

Yes, then B uses the cash to expense the well purchase IF it isn't capitalized - Credit B's Cash and debit the expense

Lane :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Lane and 2 other Tax Specialists are ready to help you

Hi Joan,

... just checking back in here, as I never saw you come into the chat.

Let me know if I can help further

Lane