Clark and Lois Formed an Equal Partnership Three Years Ago

question 1909

Multiple Choice

Clark and Lois formed an equal partnership three years ago. Clark contributed cash of $160,000 while Lois contributed land with a $90,000 adjusted basis and a $160,000 FMV. Three years later the land is sold for $210,000. The tax results to Clark and Lois are

• A) $25,000 of gain to Clark and $95,000 gain to Lois.
• B) $25,000 of gain to Clark and $70,000 gain to Lois.
• C) $60,000 of gain to both Clark and Lois.
• D) $25,000 of gain to both Clark and Lois.

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Definitions:

Ordinary Annuity

A series of equal payments made at regular intervals, with the interest compounding period being the same as the payment period.

Compounded Annually

Describes interest on an investment that is calculated annually and added to the principal sum, thus earning further interest in subsequent years.

RRSP

A Registered Retirement Savings Plan, a tax-deferred savings account for Canadians to invest money for their retirement.

Six-month Contributions

Regular payments or deposits made over a six-month period, often related to investments or savings plans.