The XYZ Partnership Owns the Following Assets on December 31

question 98

Multiple Choice

The XYZ Partnership owns the following assets on December 31: $$\begin{array} { | l | r | r | } \hline & { \text { Basis } } & { \text { FMV } } \\\hline \text { Cash } & \$ 10,000 & \$ 10,000 \\\hline \text { Unrealized receivables } & 0 & 10,000 \\\hline\text { Inventory } & \$ 25,000 & 30,000 \\\hline\end{array}$$ A partner has a 20% interest with a basis of $6,000 in XYZ before receiving a liquidating distribution of $10,000 cash. XYZ Partnership has no liabilities. His recognized gain is

• A) $4,000 capital gain.
• B) $3,000 capital gain and $1,000 ordinary income.
• C) $3,000 ordinary income.
• D) $3,000 ordinary income and $1,000 capital gain.

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Definitions:

Aggregate Planning

A process by which a company determines ideal levels of capacity, production, subcontracting, inventory, and labor for medium-term future periods to meet forecasted demand.

Overtime

Additional time worked by an employee beyond the normal or legally defined working hours, usually compensated at a higher pay rate.

Subcontracting

The practice of assigning parts of a project or job to outside companies or specialists to capitalize on efficiency and expertise.

Regular Time

The standard hours that an employee is scheduled to work, excluding overtime or abnormal schedules.