The Desert Partnership Makes a Proportionate Distribution of Its Assets

question 9

Multiple Choice

The Desert Partnership makes a proportionate distribution of its assets to Kenneth, in complete liquidation of his partnership interest.The distribution consists of $60,000 in cash and capital assets with a basis to the partnership of $110,000 and a fair market value of $160,000.None of the payment is for partnership goodwill.At the time of the distribution, Kenneth's partnership basis is $140,000 and the partnership has no liabilities and no "hot assets." If the partnership makes an optional basis adjustment election on a timely filed return, it recognizes:

• A)Capital gain of $30,000 and increases the basis of its remaining assets by $30,000.
• B)Capital loss of $30,000 and decreases the basis of its remaining assets by $30,000.
• C)No gain or loss and increases the basis of its remaining assets by $30,000.
• D)No gain or loss and decreases the basis of its remaining assets by $30,000.
• E)None of the above.

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Definitions:

Future Cash Flows

The amount of money, both incoming and outgoing, that is expected to be generated or expended in the future.

Valuing Bonds

The process of determining the present value of future cash flows from a bond, influenced by interest rates, the bond's coupon rate, and time to maturity.

Forecast Inflation Rates

Predicted increases in the overall price level of goods and services in an economy over a specified period.

Moody's Rating

A credit rating given by Moody’s Investors Service, indicating the creditworthiness of the borrower and the risk of default.