In a Proportionate Liquidating Distribution, Sara Receives a Distribution of $40,000

question 27

Multiple Choice

In a proportionate liquidating distribution, Sara receives a distribution of $40,000 cash, accounts receivable (basis of $0, fair market value of $30,000) , and inventory (basis of $50,000, fair market value of $60,000) . Sara's basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sara's basis in the accounts receivable and inventory, and how much gain or loss does she recognize?

• A) $0 basis in accounts receivable? $50,000 basis in inventory? $30,000 loss.
• B) $0 basis in accounts receivable? $80,000 basis in inventory? $0 gain or loss.
• C) $40,000 basis in accounts receivable? $40,000 basis in inventory? $0 gain or loss.
• D) $30,000 basis in accounts receivable? $50,000 basis in inventory? $30,000 loss.
• E) $30,000 basis in accounts receivable? $60,000 basis in inventory? $10,000 gain.

---

Definitions:

Government Storage

involves the holding or preservation of goods by the government, typically for strategic reserves or to stabilize market prices.

Wheat

A cereal grain that is one of the most widely cultivated crops worldwide, used as a staple food in many cultures for its versatility and nutritional value.

Fertilizer

A chemical or natural substance added to soil or land to increase its fertility and enhance plant growth.

Plasma Screen TVs

Television displays that use plasma technology to produce images, known for their bright displays and wide viewing angles.