Mr and Ms Smith's Partnership Owns the Following Assets * Potential § 1245 Recapture of $45,000

question 108

Multiple Choice

Mr. and Ms. Smith's partnership owns the following assets: $\begin{array}{lrr}&\text { Adjusted Basis }&\text { Fair Market Value }\\\text { Accounts receivable } & \$-0- & \$ 60,000 \\\text { Inventory } & 20,000 & 30,000 \\\text { Machinery and equipment* } & 50,000 & 90,000 \\\text { Buil dings** } & 120,000 & 170,000 \\\text { Land } & 80,000 & 140,000 \\& \$ \mathbf{2 7 0 , 0 0 0} & \$ 490,000\end{array}$ * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used.
Mr) and Ms. Smith each have a basis for their partnership interest of $135,000. Calculate their combined recognized gain or loss and classify it as capital or ordinary if they sell their partnership interests for $500,000.

• A)$230,000 ordinary income.
• B)$230,000 capital gain.
• C)$115,000 ordinary income and $115,000 capital gain.
• D)$110,000 ordinary income and $120,000 capital gain.
• E)None of the above.

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Definitions:

Vestibular Sense

The sensory system that contributes to balance and spatial orientation by detecting changes in motion and gravity.

Kinesthesia

The perception of body movements and position sense, often referred to as proprioception.

Sensory Interaction

The principle that one sense may influence another, as when the smell of food enhances its taste.

Embodied Cognition

The theory that cognitive processes are deeply rooted in the body's interactions with the world.