Which of the Following Statements Correctly Reflects the Rules Regarding

question 134

Multiple Choice

Which of the following statements correctly reflects the rules regarding proportionate liquidating distributions?

• A)Relief of liabilities is treated as a distribution of cash but only to the extent that the cash distribution does not exceed the partner's basis in the partnership interest.
• B)A partner's basis in distributed unrealized receivables is the lesser of the partnership's basis in the receivables or their fair market value.
• C)The basis of unrealized receivables cannot be stepped up to their fair market value unless the partner has adequate unabsorbed basis.
• D)Assets are deemed distributed in the following order: cash, unrealized receivables and inventory and finally, capital assets.
• E)The partner can recognize gain, but not loss, on a proportionate liquidating distribution.

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Definitions:

Direct Method

A cash flow statement reporting approach that lists major payments and receipts of cash, providing a clear view of cash inflows and outflows.

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, culminating in a net profit or loss.

Balance Sheet Accounts

Accounts that reflect the financial position of a company, including assets, liabilities, and shareholders' equity at a specific point in time.

Cash Paid

The outflow of cash for various purposes, such as paying for goods, services, labor, or settling debts.