Alyce Owns a 30% Interest in a Continuing Partnership

question 86

Multiple Choice

Alyce owns a 30% interest in a continuing partnership. The partnership distributes a $35,000 year-end cash payment to Alyce. In a proportionate current (nonliquidating) distribution, the partnership also distributed property (basis of $20,000, fair market value of $30,000) to Alyce. Immediately before the distributions of cash and property, Alyce's basis in the partnership interest was $60,000. As a result of the distribution, Alyce recognizes:

• A) No gain or loss.
• B) Ordinary loss of $5,000.
• C) Capital loss of $5,000.
• D) Ordinary gain of $5,000.
• E) Capital gain of $5,000.

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Definitions:

Out Of The Money

Describes an options contract that would not yield a profit if exercised at the current market level.

In The Money

Describes an option with an intrinsic value where a call option's strike price is below the market price of the underlying asset or a put option's strike price is above.

Time Value

The additional amount an investor is willing to pay for an option above its intrinsic value, based on the time remaining until its expiration.

Put Option

A financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified timeframe.