Kristen and Harrison Are Equal Partners in the KH Partnership

question 107

Multiple Choice

Kristen and Harrison are equal partners in the KH Partnership. The partners formed the partnership five years ago by contributing cash. Prior to any distributions Harrison has a basis in his partnership interest of $44,000. On December 31, KH makes a proportionate operating distribution of $50,000 cash to Harrison. What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH?

• A)$0 gain, $0 basis.
• B)$6,000 capital gain, $0 basis.
• C)$6,000 capital loss, $0 basis.
• D)$6,000 capital gain, $44,000 basis.

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Definitions:

Working Capital

An indicator of a company's short-term financial health, calculated as current assets minus current liabilities.

Acid-test Ratio

A liquidity metric that measures a company's ability to pay off its current liabilities with its most liquid assets, without relying on the sale of inventory.

Times Interest

Likely refers to the "Times Interest Earned Ratio" or "Interest Coverage Ratio," which measures a company's ability to meet its interest obligations from earnings.

Debt-to-equity Ratio

A ratio that reflects the mix of debt and equity used to finance a company's assets.