Summa Partnership Distributed $10,000 Cash and a Capital Asset (FMV

question 40

Multiple Choice

Summa Partnership distributed $10,000 cash and a capital asset (FMV $5,000 and basis $3,400) to partner D in complete liquidation of her interest in Summa.Immediately prior to the distribution, D's outside basis in her interest was $7,500.If Summa has a § 754 election in effect, which of the following statements is accurate?

• A)Summa may increase the basis in its capital and § 1231 assets by $2,500.
• B)Summa may increase the basis in its capital and § 1231 assets by $5,000.
• C)Summa may increase the basis in its capital and § 1231 assets by $3,400.
• D)Summa may increase the basis in its capital and § 1231 assets by $5,900.
• E)The property distribution has no effect on the basis of Summa's assets.

---

Definitions:

Capital Balances

The amount of capital that remains in a business after deductions, representing the residual interest in the firm's assets after liabilities have been deducted.

Net Income

The profit remaining after all expenses, taxes, and costs have been subtracted from total revenue.

Ratio

A quantitative relationship between two numbers, often used in financial analysis to assess the performance, liquidity, or solvency of a business.

Capital Account

In macroeconomics and international finance, a component of the balance of payments that records all transactions involving the purchase or sale of assets.