Nicholas Is a 25% Owner in the DDBN LLC (A

question 57

Multiple Choice

Nicholas is a 25% owner in the DDBN LLC (a calendar year entity) .At the end of the last tax year, Nicholas's basis in his interest was $50,000, including his $20,000 share of LLC liabilities.On July 1 of the current tax year, Nicholas sells his LLC interest to Anna for $80,000 cash.In addition, Anna assumes Nicholas's share of LLC liabilities, which, at that date, was $15,000.During the current tax year, DDBN's taxable income is $120,000 (earned evenly during the year) .Nicholas's share of the LLC's unrealized receivables is valued at $6,000 ($0 basis) .At the sale date, what is Nicholas's basis in his LLC interest, how much gain or loss must he recognize, and what is the character of the gain or loss?

• A)$45,000 basis; $6,000 ordinary income; $44,000 capital gain.
• B)$60,000 basis; $6,000 ordinary income; $29,000 capital gain.
• C)$60,000 basis; $35,000 capital gain.
• D)$75,000 basis; $0 ordinary income; $20,000 capital gain.
• E)$75,000 basis; $6,000 ordinary income; $14,000 capital gain.

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Definitions:

Joint Production Process

A manufacturing process in which two or more products are produced simultaneously from the same raw materials or inputs.

Budgeted Data

Forecasted or planned financial information used for budgeting and planning purposes.

Special Molds

Custom-designed molds used in manufacturing processes to produce unique product shapes or designs.

Variable Costs

Expenses that change in proportion to the activity of a business, such as the cost of raw materials used in production.