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:

Shares

Units of ownership in a company, typically traded on a stock exchange, representing a portion of the corporate equity.

Treasury Stock

Shares that were issued and later reacquired by the issuing company.

Par Common Stock

The nominal or face value of common stock as stated in the corporate charter, which is the minimum amount that must be paid by investors for each share.

Preferred Stock

A type of stock that provides dividends before common stockholders and has priority over common stock in the event of liquidation.