In a Proportionate Liquidating Distribution, Sara Receives a Distribution of $40,000

question 27

Multiple Choice

In a proportionate liquidating distribution, Sara receives a distribution of $40,000 cash, accounts receivable (basis of $0, fair market value of $30,000) , and inventory (basis of $50,000, fair market value of $60,000) . Sara's basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sara's basis in the accounts receivable and inventory, and how much gain or loss does she recognize?

• A) $0 basis in accounts receivable? $50,000 basis in inventory? $30,000 loss.
• B) $0 basis in accounts receivable? $80,000 basis in inventory? $0 gain or loss.
• C) $40,000 basis in accounts receivable? $40,000 basis in inventory? $0 gain or loss.
• D) $30,000 basis in accounts receivable? $50,000 basis in inventory? $30,000 loss.
• E) $30,000 basis in accounts receivable? $60,000 basis in inventory? $10,000 gain.

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Definitions:

Professional Competence

Professional competence refers to the ability and expertise to perform a task or job effectively, meeting the required standards of the profession.

Planning Phase

The initial stage in a project or process where objectives are set, resources are allocated, and plans are made to pursue goals.

Allocating Resources

The process of assigning available resources in the most efficient way to achieve business goals and objectives.

Total Quality Management (TQM)

An organizational approach that seeks to improve quality and performance to meet or exceed customer expectations through continuous process improvements.