Barney,Bob,and Billie Are Equal Partners in the BBB Partnership

question 23

Multiple Choice

Barney,Bob,and Billie are equal partners in the BBB Partnership.The partnership balance sheet reads as follows on December 31 of the current year:

Partner Billie has an adjusted basis of $40,000 for her partnership interest.If Billie sells her entire partnership interest to new partner Janet for $60,000 cash,how much capital gain and ordinary income must Billie recognize from the sale?

• A)$20,000 ordinary income.
• B)$20,000 capital gain.
• C)$10,000 ordinary income; $10,000 capital gain.
• D)$30,000 ordinary income; $10,000 capital loss.
• E)None of the above.

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Definitions:

Investing Activities

Investing activities involve the purchase and sale of long-term assets and other investments, not including cash equivalents, as part of a company’s capital allocation strategy.

Short-term Investments

Assets that are expected to be converted into cash, sold, or consumed within one year or within the business cycle, whichever is longer.

Cash Dividends

Payments made by a corporation to its shareholders out of its profits or reserves.

Quality of Income Ratio

A measure that compares cash flow from operating activities to net income, indicating the quality of a company's earnings.