Rich Is a Partner in RKW Partnership

question 47

Multiple Choice

Rich is a partner in RKW partnership.Rich owned 50% from January 1,2014 to April 30,2014,when he bought Kevin's 25% interest.He owned 75% for the rest of the year (assume a 365-day year) .The partnership had ordinary income of $150,000 and $25,000 in long-term capital gains.Barring any special allocations in a partnership agreement,Rich's share of the income items is:

• A) $75,000 ordinary income; $12,500 capital gain.
• B) $100,172 ordinary income; $16,696 capital gain.
• C) $112,500 ordinary income; $18,750 capital gain.
• D) $150,000 ordinary income; $25,000 capital gain.

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Definitions:

Payback Period

The duration of time it takes to recoup the cost of an investment.

Discounted Payback

A capital budgeting method that calculates the time required to break even from an investment based on its discounted cash flows rather than just the nominal cash flows.

Liquid Investments

Assets that can be quickly and easily converted into cash without significant loss in value, like stocks and bonds.

Payback

The period of time it takes for an investment to generate an amount of income or cash equal to the cost of the investment.