Beth Has an Outside Basis of $100,000 in the BJDE

question 49

Multiple Choice

Beth has an outside basis of $100,000 in the BJDE Partnership as of December 31 of the current year. On that date the partnership liquidates and distributes to Beth a proportionate distribution of $50,000 cash and inventory with an inside basis to the partnership of $10,000 and a fair market value of $16,000. In addition, Beth receives an antique desk (not inventory) which has an inside basis (and fair market value) of $5,000. None of the distribution is for partnership goodwill. How much gain or loss will Beth recognize on the distribution, and what basis will she take in the desk?

• A)$40,000 loss; $0 basis.
• B)$35,000 loss; $5,000 basis.
• C)$0 gain or loss; $5,000 basis.
• D)$0 gain or loss; $40,000 basis.
• E)None of the above.

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Definitions:

Spot Price

The current market price at which an asset, such as securities, commodities, or currencies, can be bought or sold for immediate delivery.

Basis Risk

The possibility that a futures contract's price won't align with the movements of the underlying asset's price, resulting in potential financial losses during hedging activities.

Clearinghouse

An intermediary between buyers and sellers of financial instruments that ensures the orderly and efficient settlement of transactions.