Misha Receives a Proportionate Nonliquidating Distribution When the Basis of Her

question 29

Multiple Choice

Misha receives a proportionate nonliquidating distribution when the basis of her partnership interest is $60,000.The distribution consists of $80,000 cash and inventory (adjusted basis to the partnership of $10,000,fair market value of $20,000) .How much gain or loss does Misha recognize,and what is her basis in the distributed inventory and in her partnership interest following the distribution?

• A)$0 gain or loss;$10,000 basis in inventory;$0 basis in partnership interest.
• B)$0 gain or loss;$20,000 basis in inventory;$50,000 basis in partnership interest.
• C)$20,000 capital gain;$0 basis in inventory;$0 basis in partnership interest.
• D)$20,000 capital gain;$10,000 basis in inventory;$0 basis in partnership interest.
• E)$20,000 ordinary income;$0 basis in inventory;$20,000 basis in partnership interest.

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Definitions:

Tax Impact

The effect of taxation on an individual's or company's financial situation, including tax liabilities and planning.

Incremental Cash Flow

Incremental cash flow is the additional cash flow a company receives from taking on a new project or investment, used to assess its profitability.

Sunk Costs

Expenses that have already been incurred and cannot be recovered or changed, and therefore should not influence future decisions.

Sunk Costs

Expenses that have already been incurred and cannot be recovered.