Kristen and Harrison Are Equal Partners in the KH Partnership

question 85

Multiple Choice

Kristen and Harrison are equal partners in the KH Partnership. The partners formed the partnership 5 years ago by contributing cash. Prior to any distributions Harrison has a basis in his partnership interest of $44,000. On December 31, KH makes a proportionate operating distribution of $50,000 cash to Harrison. What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH?

• A) $0 gain, $0 basis.
• B) $6,000 capital gain, $0 basis.
• C) $6,000 capital loss, $0 basis.
• D) $6,000 capital gain, $44,000 basis.

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Definitions:

Commercial Substance

A situation where a transaction causes a significant change to the future cash flows of a company.

Book Value

The value of an asset according to its balance sheet account balance, calculated as the original cost of the asset minus any accumulated depreciation, amortization, or impairment costs.

Market Value

Market value refers to the current price at which an asset or service can be bought or sold on the open market.

Disposal

The act of getting rid of something, especially by throwing it away or by selling or giving it to someone.