For a 30% Interest in Partnership Capital, Profits, and Losses

question 80

Multiple Choice

For a 30% interest in partnership capital, profits, and losses, Carol contributes a machine with a basis of $40,000 and an FMV of $80,000. The partnership assumes a $70,000 recourse liability on the machine. At the time of the contribution, the partnership had recourse liabilities of $10,000. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Following the contribution, Carol has

• A)a capital loss due to the contribution of $6,000 and a zero basis in the partnership interest.
• B)a capital gain due to the contribution of $6,000 and a zero basis in the partnership interest.
• C)a $34,000 basis in the partnership interest and no gain or loss.
• D)a $43,000 basis in the partnership interest and no gain or loss.

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Definitions:

Monopolistically Competitive

A market structure where many firms sell products that are similar but not identical, allowing for competition based on quality, price, and brand.

Long-Run Equilibriums

A state in a market where all firms are making zero economic profit, and no new firms enter or exit the industry, resulting in a stable market condition over time.

Interdependent Firms

Businesses whose decisions and performance affect and are affected by the decisions and performance of other firms within the market.

Identical Products

Goods that are exactly the same in every characteristic, quality, and performance, with no differentiation.