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

question 130

Multiple Choice

In a proportionate liquidating distribution, Ashleigh receives a distribution of $30,000 cash, accounts receivable (basis of $0, fair market value of $40,000) , and land (basis of $40,000, fair market value of $50,000) . In addition, the partnership repays all liabilities of which Ashleigh's share was $70,000. Ashleigh's basis in the entity immediately before the distribution was $60,000. As a result of the distribution, what is Ashleigh's basis in the accounts receivable and land, and how much gain or loss does she recognize?

• A) $0 basis in accounts receivable; $30,000 basis in land; $20,000 gain.
• B) $0 basis in accounts receivable; $0 basis in land; $40,000 gain.
• C) $0 basis in accounts receivable; $40,000 basis in land; $0 gain or loss.
• D) $40,000 basis in accounts receivable; $20,000 basis in land; $20,000 gain.
• E) $40,000 basis in accounts receivable; $20,000 basis in land; $100,000 gain.

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Definitions:

Depreciation

A method of allocating the cost of a tangible asset over its useful life.

Comparative Income Statement

A financial statement that compares income, expenses, and net income over different periods, helping to identify trends and assess performance.

Variable Cost

A cost that varies with the level of output or activity, such as raw materials, labor, and utility expenses.