Part 2 Kathy and Andrew own and operate EA, LLC. The company balance sheet shows assets as of today as follows: Fair Market Value Adjusted Basis Accounts receivable Inventory Equipment (Cost = $42,000) $60,000 $60,000 $37,000 $35,000 $18,000 $25,000 Land and buildings (no deprecation claimed) $210,000 $100,000 $325,000 $220,000 Kathy owns 60% of the profits, losses and capital; Andrew, 40%. Andrew sold his 40% interest to Howard for $130,000 cash. a. What is the amount and character of Andrew's gain or loss? Note: You may assume that Andrew's outside basis = Andrew's share of inside basis. b. Assuming there is a § 754 election in place, what is the amount of the § 743(b) adjustment and how is it allocated amongst the assets? Consult § 755 and the related regulations.

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