Misha Receives a Proportionate Current (Nonliquidating) Distribution When the Basis

question 113

Multiple Choice

Misha receives a proportionate current (nonliquidating) distribution when the basis of his partnership interest is $60,000. The distribution consists of $80,000 cash and inventory (adjusted basis to the partnership of $10,000, fair market value of $20,000) . How much gain or loss does Misha recognize, and what is his basis in the distributed inventory and in the partnership interest following the distribution?

• A) $0 gain or loss; $10,000 basis in inventory; $0 basis in partnership interest.
• B) $0 gain or loss; $20,000 basis in inventory; $50,000 basis in partnership interest.
• C) $20,000 capital gain; $0 basis in inventory; $0 basis in partnership interest.
• D) $20,000 capital gain; $10,000 basis in inventory; $0 basis in partnership interest.
• E) $20,000 ordinary income; $0 basis in inventory; $20,000 basis in partnership interest.

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Definitions:

ABC Analysis

A method for classifying inventory or items into three categories (A, B, and C) based on their importance, usually determined by value or usage rate.

Inventory Savings

Reductions in costs achieved through efficient management of stock, including ordering, storing, and using goods or materials.

Economic Order Quantity

A calculation that determines the optimal order quantity that minimizes total inventory costs, including holding, ordering, and shortage costs.

Safety Stock

An extra quantity of inventory kept on hand to prevent stockouts caused by unpredictable demand or supply delays.