On December 31 of Last Year, Alex and Jackson Become

question 74

Multiple Choice

On December 31 of last year, Alex and Jackson become equal partners in the AJ Partnership with assets having a tax basis and FMV of $120,000. The partnership, which deals in securities, had no liabilities at the end of last year. In January of this year, Franklin contributes his investment securities with an FMV of $60,000 (purchased two years ago at a cost of $45,000) to become an equal partner in the new AJF Partnership. The securities, which are inventory to the partnership, are sold on December 15 of the current year for $90,000. What amount and character of gain from the sale of these securities should be allocated to Franklin?

• A) $25,000 capital gain
• B) $15,000 capital gain and $10,000 ordinary income
• C) $10,000 ordinary income
• D) $25,000 ordinary income

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