Partnership Records Show R Is a 50 Percent Partner

question 23

Multiple Choice

Partnership records show: $\begin{array}{ll}&\text { Inside Basis }&FMV\\\text { Inventory }&\$12,000 & \$28,000 \\\text { Land }&48,000 & 70,000\\\text { Equipment }&32,000&42,000\\\text { Total assets }&\$92,000&\$140,000\end{array}$ R is a 50 percent partner.The equipment has $10,000 of § 1245 recapture potential.R's predistribution outside basis is $46,000.The partnership liquidates by distributing the land to R and the inventory and equipment to her partner.R's recognized gain on the liquidation is

• A)$0
• B)$13,000 ordinary income
• C)$24,000 capital gain
• D)$11,000 capital gain
• E)$13,000 ordinary income and $11,000 capital gain

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Definitions:

Creative Destruction

The process by which new innovations cause the demise of existing technologies, firms, or products, considered essential for progress in a capitalist economy.

Music Listening Industry

The sector of the economy associated with the production, distribution, and consumption of music by audiences.

Invisible Hand

A concept introduced by Adam Smith to describe the unintended social benefits resulting from individual actions when individuals pursue their own interests.

Competitive Market System

A market structure characterized by many buyers and sellers, free entry and exit from the market, and products that are similar.