Ali, a Contractor, Builds an Office Building for a Construction

question 82

Multiple Choice

Ali, a contractor, builds an office building for a construction partnership in exchange for a capital and profits interest in the partnership worth $500,000. Which of the following statements is correct?

• A)Ali recognizes $500,000 of ordinary income and the partnership can deduct $500,000 in the current year.
• B)Ali recognizes no income and the partnership can deduct nothing in the current year.
• C)Ali recognizes $500,000 ordinary income and the partnership deducts the $500,000 over the building's MACRS recovery period as a depreciation expense.
• D)Ali recognizes ordinary income in the current year in an amount equal to the depreciation deduction the partnership claims this year for the $500,000 capitalized amount.

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Definitions:

Controllable Margin

A measure of profitability that represents the amount of revenue left after deducting all controllable expenses.

ROI

Return on Investment, a performance measure used to evaluate the efficiency or profitability of an investment relative to its cost.

Controllable Margin

The portion of profit or loss that can be directly controlled or influenced by management decisions.

Average Assets

The average value of a company's assets over a specific period of time, used in calculating metrics such as return on average assets (ROAA).