The PW Partnership's Balance Sheet Includes the Following Assets Immediately

question 51

Multiple Choice

The PW partnership's balance sheet includes the following assets immediately before it liquidates:
In complete liquidation, PW distributes the cash to Pamela and the unrealized receivables to Wade (equal partners) . Pamela and Wade each have an outside basis in PW equal to $5,000. PW has no liabilities at the time of the liquidation. What is the amount and character of Pamela's recognized gain or loss?

• A) $0.
• B) $5,000 capital gain.
• C) $5,000 ordinary income.
• D) $2,500 capital gain and $2,500 ordinary income.

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Definitions:

Downward Rigidity

A circumstance in which wages or prices are resistant to decrease even in conditions where economic theory suggests they should fall.

Recessions

A temporary downturn in the economy marked by decreased trade and industrial production, typically recognized by a decrease in Gross Domestic Product (GDP) for two consecutive quarters.

Long-Run Aggregate Supply Curve

A graphical representation showing the relationship between the price level and the quantity of output that an economy can produce when all resources are fully employed, assuming no changes in technology or resource availability.

Classical Model

An economic theory that suggests markets function best with minimal government intervention and that supply and demand are the primary forces driving the economy.