Mark Receives a Proportionate Nonliquidating Distribution

question 50

Multiple Choice

Mark receives a proportionate nonliquidating distribution. At the beginning of the partnership year, the basis of his partnership interest is $100,000. During the year, he received a cash distribution of $40,000 and a property distribution (basis of $30,000, fair market value of $25,000) . In addition, Mark's share of partnership liabilities was reduced by $10,000 during the year. How much gain or loss does Mark recognize; what is his basis in the property he received; and what is his remaining basis in the partnership interest?

• A)$25,000 loss; $25,000 basis in property; $0 remaining basis.
• B)$30,000 loss; $30,000 basis in property; $0 remaining basis.
• C)$0 gain or loss; $25,000 basis in property; $25,000 remaining basis.
• D)$0 gain or loss; $30,000 basis in property; $20,000 remaining basis.
• E)$0 gain or loss; $30,000 basis in property; $30,000 remaining basis.

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Definitions:

Mutually Exclusive

A condition where the occurrence of one event precludes the occurrence of another in decision making or statistical probability.

Discount Rate

The rate applied in DCF assessment to compute the present worth of imminent cash flows.

Internal Rate

Short for Internal Rate of Return (IRR), a financial metric used to estimate the profitability of potential investments by calculating the rate of return at which net present value of all cash flows (both positive and negative) from a project equals zero.

Profitability Index

A capital budgeting tool that measures the ratio of the present value of future cash flows from an investment to the investment's initial cost.