Matt Has Three Passive Activities and Has At-Risk Amounts in Excess

question 34

Multiple Choice

Matt has three passive activities and has at-risk amounts in excess of $100,000 for each. During the year, the activities produced the following income (losses) .
$\begin{array}{lr}\text { Activity A } & (\$ 60,000) \\\text { Activity B } & (40,000) \\\text { Activity C } & 75,000 \\\text { Net passive loss } & (\$ 25,000) \end{array}$

Matt's suspended losses are as follows:

• A) $25,000 is allocated to C; $0 to A and B.
• B) $12,500 is allocated to A; $12,500 to B.
• C) $15,000 is allocated to A; $10,000 to B.
• D) $8,333 is allocated to A, B, and C.
• E) None of the above.

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Definitions:

Liquidator's Receipts

These are documents or proofs of payment received by creditors and shareholders after the assets of a liquidated company have been distributed.

Court Ordered Winding Up

The legal process of dissolving a company, initiated by a court order, usually because it is insolvent.

Liquidator's Power

Refers to the authority granted to a liquidator to manage and sell a company's assets, pay off creditors, and distribute any remaining assets to shareholders during the process of winding up a company.

Shareholders Before Creditors

This principle dictates that in the hierarchy of corporate structure, shareholders' equity is ranked lower than the claims of creditors in the event of a liquidation.