Carlos Receives a Proportionate Liquidating Distribution Consisting of $8,000 Cash

question 179

True/False

Carlos receives a proportionate liquidating distribution consisting of $8,000 cash and inventory with a basis to the partnership of $5,000 and a fair market value of $6,000. His basis in his partnership interest was $15,000 immediately before the distribution. Carlos assigns a basis of $7,000 to the inventory and recognizes no gain or loss.

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Definitions:

Work in Process

Inventory items that are in the manufacturing process but have not yet completed production.

Cash Account

An account that records cash transactions, including both incoming and outgoing cash flows, essential for effective financial management.

Raw Materials

The basic materials from which products are made, usually processed in several stages in the production cycle.

Direct Labor Cost

The total cost of all labor directly involved in the production of goods or services.