In a Proportionate Liquidating Distribution, Sam Receives a Distribution of $30,000

question 171

Multiple Choice

In a proportionate liquidating distribution, Sam receives a distribution of $30,000 cash, accounts receivable (basis of $0, fair market value of $50,000) , and land (basis of $20,000, fair market value of $50,000) . In addition, the partnership repays all liabilities of which Sam's share was $40,000. Sam's basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sam's basis in the accounts receivable and land, and how much gain or loss does he recognize?

• A) $0 basis in accounts receivable; $50,000 basis in land; $0 gain or loss.
• B) $0 basis in accounts receivable; $90,000 basis in land; $0 gain or loss.
• C) $50,000 basis in accounts receivable; $40,000 basis in land; $0 gain or loss.
• D) $50,000 basis in accounts receivable; $50,000 basis in land; $50,000 gain.
• E) $0 basis in accounts receivable; $70,000 basis in land; $30,000 loss.

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Definitions:

Time Premium

The portion of an option's price that exceeds its intrinsic value, representing the value placed on the remaining time until expiration.

Preferred Shareholders

Preferred shareholders are investors who own shares of a company's stock with preferential rights over common stock, particularly in dividend payments and upon liquidation.

Common Shareholders

Individuals or entities that own shares in a corporation, giving them rights to dividends and a say in company matters through voting.

Bondholders

Individuals or institutions that hold the debt securities issued by corporations or governments, thus lending them money in exchange for periodic interest payments and the return of principal at maturity.