In a Proportionate Liquidating Distribution, Sara Receives a Distribution of $40,000

question 224

Multiple Choice

In a proportionate liquidating distribution, Sara receives a distribution of $40,000 cash, accounts receivable (basis of $0, fair market value of $30,000) , and inventory (basis of $50,000, fair market value of $60,000) . Her basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sara's basis in the accounts receivable and inventory, and how much gain or loss does she recognize?

• A) $0 basis in accounts receivable; $50,000 basis in inventory; $30,000 loss.
• B) $0 basis in accounts receivable; $80,000 basis in inventory; $0 gain or loss.
• C) $40,000 basis in accounts receivable; $40,000 basis in inventory; $0 gain or loss.
• D) $30,000 basis in accounts receivable; $50,000 basis in inventory; $30,000 loss.
• E) $30,000 basis in accounts receivable; $60,000 basis in inventory; $10,000 gain.

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Definitions:

PERT Project

Program Evaluation and Review Technique, a project management tool used to plan, schedule, and control complex projects.

Expected Completion

An estimated time or date by which a project, task, or operation is predicted to be finished, taking into account various factors affecting its progress.

Duration Variance

A measure used in project management to quantify the difference between the planned and actual duration of project activities.

PERT Analysis

Project Evaluation and Review Technique, a statistical tool used in project management designed to analyze and represent the tasks involved in completing a given project, incorporating time estimates for completing each task.