In a Proportionate Liquidating Distribution, Alexandria Receives a Distribution of $70,000

question 33

Multiple Choice

In a proportionate liquidating distribution, Alexandria receives a distribution of $70,000 cash, accounts receivable (basis of $0 and fair market value of $20,000) , and land (basis of $30,000 and fair market value of $60,000) . In addition, the partnership repays all liabilities, of which Alexandria's share was $40,000. Alexandria's basis in the entity immediately before the distribution was $90,000. As a result of the distribution, what is Alexandria's basis in the accounts receivable and land, and how much gain or loss does she recognize?

• A) $0 basis in accounts receivable; $0 basis in land; $20,000 gain.
• B) $0 basis in accounts receivable; $30,000 basis in land; $0 gain or loss.
• C) $0 basis in accounts receivable; $0 basis in land; $0 gain or loss.
• D) $0 basis in accounts receivable; $30,000 basis in land; $0 gain.
• E) $20,000 basis in accounts receivable; $0 basis in land; $20,000 gain.

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Definitions:

Income Tax Expense

The cost of income taxes, representing the taxpayer's obligation to federal, state, and sometimes local governments, based on earnings before taxes.

Interest Expense

The cost incurred by an entity for borrowed funds, typically reported on the income statement.

Profit Margin

A financial metric indicating the percentage of revenue that remains as profit after all expenses are deducted.

Income Tax Rate

The percentage at which an individual or corporation is taxed on their income.