Before Receiving a Liquidating Distribution,Kathy's Basis in Her Interest in the KLM

question 29

Multiple Choice

Before receiving a liquidating distribution,Kathy's basis in her interest in the KLM Partnership is $30,000.The distribution consists of $5,000 in money,inventory having a $1,000 basis to the partnership and a $2,000 FMV,and two parcels of undeveloped land (not held as inventory) having basis of $3,000 and $9,000 to the partnership with FMVs of $5,000 and $12,000,respectively.What is Kathy's basis in each parcel of land?

• A) \[\begin{array} { | l | l | }
• \hline \text { Parcel One } & \text { Parcel Two } \\
• \hline \$ 5,000 & \$ 12,000 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | l | }
• \hline \text { Parcel One } & \text { Parcel Two } \\
• \hline \$ 3,000 & \$ 9,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | l | }
• \hline \text { Parcel One } & \text { Parcel Two } \\
• \hline \$ 7,059 & \$ 16,941 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | l | }
• \hline \text { Parcel One } & \text { Parcel Two } \\
• \hline \$ 6,000 & \$ 18,000 \\
• \hline
• \end{array}\]

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Definitions:

Liquidity

A measure of how easily assets can be converted into cash or cash equivalents without significantly altering their value, essential for meeting short-term obligations.

Asset Management

A methodical approach to the creation, operation, upkeep, and disposition of assets that ensures cost efficiency.

Debt Financing

Raising capital through borrowing money that must be repaid over time, with interest, from lenders or financial institutions.

Industry Standard

A prevalent practice, process, or guideline followed within a specific industry to ensure quality, safety, and efficiency.