In a Proportionate Liquidating Distribution in Which the Partnership Is

question 212

Essay

In a proportionate liquidating distribution in which the partnership is liquidated, Bill received cash of $120,000, inventory (basis of $6,000, fair market value of $8,000), and a capital asset (basis and fair market value of $16,000). Immediately before the distribution, Bill's basis in the partnership interest was $90,000.

a. How much gain or loss will Bill recognize on the distribution?
b. What is Bill's basis in the inventory and the capital asset?

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Definitions:

Corporation

A business organized as a separate legal entity owned by stockholders.

Legal Capital

The amount of capital that must be maintained in the business as a safeguard for creditors, represented by the par value of issued shares.

Earnings Per Share

A metric that shows the portion of a company's profit allocated to each outstanding share of common stock.

Common Shareholders

Individuals or entities that own common shares in a corporation, granting them voting rights and a share in the company's profits via dividends.