Michelle Receives a Proportionate Liquidating Distribution When the Basis of Her

question 219

Multiple Choice

Michelle receives a proportionate liquidating distribution when the basis of her partnership interest is $50,000. The distribution consists of $58,000 cash and noninventory property (adjusted basis to the partnership of $10,000 and fair market value of $12,000) . The partnership has no hot assets. How much gain or loss does Michelle recognize, and what is her basis in the distributed property?

• A) $0 gain or loss? $0 basis in property.
• B) $0 gain or loss? $50,000 basis in property.
• C) $8,000 ordinary income? $0 basis in property.
• D) $8,000 capital gain? $10,000 basis in property.
• E) $8,000 capital gain? $0 basis in property.

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Definitions:

Stockholders' Equity

The portion of the balance sheet that represents the capital received from investors in exchange for stock (paid-in capital), donated capital and retained earnings.

Cash Dividend

A payment made by a company out of its earnings to shareholders, usually in the form of cash.

Liquidating Dividend

A type of dividend paid by a company to its shareholders out of its capital base, essentially returning a portion of the capital initially invested back to the shareholders.

Earnings Per Share

A metric for assessing a company's earnings, determined by dividing its net income by the total outstanding common stock shares.