In a Proportionate Liquidating Distribution, Sara Receives a Distribution of $40,000

question 224

Multiple Choice

In a proportionate liquidating distribution, Sara receives a distribution of $40,000 cash, accounts receivable (basis of $0, fair market value of $30,000) , and inventory (basis of $50,000, fair market value of $60,000) . Her basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sara's basis in the accounts receivable and inventory, and how much gain or loss does she recognize?

• A) $0 basis in accounts receivable; $50,000 basis in inventory; $30,000 loss.
• B) $0 basis in accounts receivable; $80,000 basis in inventory; $0 gain or loss.
• C) $40,000 basis in accounts receivable; $40,000 basis in inventory; $0 gain or loss.
• D) $30,000 basis in accounts receivable; $50,000 basis in inventory; $30,000 loss.
• E) $30,000 basis in accounts receivable; $60,000 basis in inventory; $10,000 gain.

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Definitions:

Private Ownership

The possession of property by individuals or legal entities other than the government.

Clearly Defined

Specifically and unambiguously articulated or delineated.

Private Owner

An individual or entity that legally possesses property or a business and has exclusive rights over its use and distribution.

Economic Significance

The measure of the impact that an event, policy, or market trend has on economic factors such as growth, employment, inflation, and investment.