In a Proportionate Liquidating Distribution, Ashleigh Receives a Distribution of $30,000

question 130

Multiple Choice

In a proportionate liquidating distribution, Ashleigh receives a distribution of $30,000 cash, accounts receivable (basis of $0, fair market value of $40,000) , and land (basis of $40,000, fair market value of $50,000) . In addition, the partnership repays all liabilities of which Ashleigh's share was $70,000. Ashleigh's basis in the entity immediately before the distribution was $60,000. As a result of the distribution, what is Ashleigh's basis in the accounts receivable and land, and how much gain or loss does she recognize?

• A) $0 basis in accounts receivable; $30,000 basis in land; $20,000 gain.
• B) $0 basis in accounts receivable; $0 basis in land; $40,000 gain.
• C) $0 basis in accounts receivable; $40,000 basis in land; $0 gain or loss.
• D) $40,000 basis in accounts receivable; $20,000 basis in land; $20,000 gain.
• E) $40,000 basis in accounts receivable; $20,000 basis in land; $100,000 gain.

---

Definitions:

Common Stock Option Warrants

Rights issued to investors to purchase stock at a specified price before a certain date, often used as an investment incentive.

Stock Option Plan

A compensation strategy used by companies to grant employees the option to purchase company shares at a predetermined price.

Compensation Expense

The total cost incurred by an employer to compensate its employees, including wages, benefits, bonuses, and any other form of payment for services rendered.