Misha Receives a Proportionate Nonliquidating Distribution When the Basis of Her

question 29

Multiple Choice

Misha receives a proportionate nonliquidating distribution when the basis of her partnership interest is $60,000.The distribution consists of $80,000 cash and inventory (adjusted basis to the partnership of $10,000,fair market value of $20,000) .How much gain or loss does Misha recognize,and what is her basis in the distributed inventory and in her partnership interest following the distribution?

• A)$0 gain or loss;$10,000 basis in inventory;$0 basis in partnership interest.
• B)$0 gain or loss;$20,000 basis in inventory;$50,000 basis in partnership interest.
• C)$20,000 capital gain;$0 basis in inventory;$0 basis in partnership interest.
• D)$20,000 capital gain;$10,000 basis in inventory;$0 basis in partnership interest.
• E)$20,000 ordinary income;$0 basis in inventory;$20,000 basis in partnership interest.

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Definitions:

Liabilities

Financial obligations or debts that a company owes to others, which must be paid back in the future.

Debts Owed

Amounts of money that are required to be repaid by an individual or organization to creditors.

Drawing Account

A specific account used to record amounts withdrawn by the owner(s) of a business for personal use.

Withdrawals

Amounts taken from a business by its owner(s) for personal use.