Mr.and Ms.Smith's Partnership Owns the Following Assets

question 25

Multiple Choice

Mr.and Ms.Smith's partnership owns the following assets:
* Potential § 1245 recapture of $30,000.

** Straight-line depreciation was used.
mr.and Ms.Smith each have a basis for their partnership interest of $135,000. Calculate their combined recognized gain or loss and classify it as capital or ordinary if they sell their partnership interests for $470,000.

• A)$200,000 ordinary income.
• B)$200,000 capital gain.
• C)$100,000 ordinary income and $100,000 capital gain.
• D)$90,000 ordinary income and $110,000 capital gain.
• E)None of the above.

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Definitions:

Straight-Line Depreciation

A system for spreading out the cost of a tangible asset in equal yearly amounts across its functional life.

Average Rate of Return

A financial metric used to evaluate the profitability of an investment, calculated as the average annual profit divided by the initial investment cost.

Annual Income

The total earnings or revenue generated by an individual or business in one fiscal year before any deductions.

Capital Projects

Large, long-term investments undertaken to create, expand, or replace a company's physical assets.