The XYZ Partnership Owns the Following Assets on December 31

question 18

Multiple Choice

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

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

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Definitions:

Express Agreement

A clear and unambiguous mutual understanding or contract between parties, typically in written or spoken form, regarding the terms of their arrangement.

Legal Rules

These are principles or directives enacted by a governing body that regulate behavior and are enforceable by the imposition of penalties for violations.

Commission

A fee paid to an agent or employee for transacting a sale, calculated as a percentage of the sale price.

Quota

A predetermined limit on the amount of goods that can be imported or produced within a set period.