The PW Partnership's Balance Sheet Includes the Following Assets Immediately

question 42

Multiple Choice

The PW partnership's balance sheet includes the following assets immediately before it liquidates: $\begin{array}{c}\begin{array}{lll}\\Cash\\\text{Unrealized receivables}\\Totals\\\end{array}\begin{array}{lll}\underline{\text { Basis }} \\\mathbf{1 0 , 0 0 0} \\\underline{\mathbf{-0-}} \\\$ \mathbf{10 , 0 0 0}\\\end{array}\begin{array}{lll}\underline{FMV}\\\mathbf{\$ 1 0 , 0 0 0} \\\underline{\mathbf{1 0 , 0 0 0}} \\\mathbf{\$ 2 0 , 0 0 0}\\\end{array}\end{array}$ In complete liquidation PW distributes the cash to Pamela and the unrealized receivables to Wade (equal partners) . Pamela and Wade each have an outside basis in PW equal to $5,000. PW has no liabilities at the time of the liquidation. What is the amount and character of Pamela's recognized gain or loss?

• A) $0
• B) $5,000 capital gain
• C) $5,000 ordinary income
• D) $2,500 capital gain and $2,500 ordinary income

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Definitions:

Woodworth

Robert S. Woodworth was an influential American psychologist known for his work in experimental psychology and the dynamic theory of motivation and personality.

Bodily Needs

Fundamental physiological requirements for human survival and well-being, such as the need for food, water, and sleep.

Metabolism

The chemical processes that occur within a living organism in order to maintain life, involving the conversion of food to energy, elimination of waste, and other bodily functions.

Reproduction

The biological process by which new individual organisms are produced, ensuring the continuation of a species.