Daniela Is a 25% Partner in the JRD Partnership

question 100

Multiple Choice

Daniela is a 25% partner in the JRD Partnership.On January 1,JRD makes a proportionate distribution of $16,000 cash,inventory with a $16,000 fair value (inside basis $8,000) ,and accounts receivable with a fair value of $8,000 (inside basis of $12,000) to Daniela.JRD has no liabilities at the date of the distribution.Daniela's basis in JRD is $20,000.What is Daniela's basis in the distributed inventory and accounts receivable?

• A) $2,000 inventory, $2,000 accounts receivable.
• B) $8,000 inventory, $12,000 accounts receivable.
• C) $0 inventory, $4,000 accounts receivable.
• D) $16,000 inventory, $8,000 accounts receivable.

---

Definitions:

Debt Ratio

The portion of assets financed by debt, showing the extent to which a company relies on borrowed funds for its operations.

MM Model

Refers to the Modigliani-Miller theorem, a foundational concept in corporate finance that states that under certain market conditions, the value of a firm is unaffected by how it is financed.

Arbitrage

The simultaneous buying and selling of the same commodity or security in two different markets at different prices, thus pocketing a risk-free return.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity, which is used to finance its overall operations and growth.