The December 31,2012,balance Sheet of the RST General Partnership Reads

question 7

Multiple Choice

The December 31,2012,balance sheet of the RST General Partnership reads as follows. The partners share equally in partnership capital,income,gain,loss,deduction and credit.Ted's adjusted basis for his partnership interest is $40,000.On December 31,2012,he retires from the partnership,receiving a $60,000 cash payment in liquidation of his interest.The partnership agreement states that $2,500 of the payment is for goodwill.Which of the following statements about this distribution is false?

• A)If capital is NOT a material income-producing factor to the partnership,the § 736(a)payment will be $2,500.
• B)If capital IS a material income-producing factor,the entire $60,000 payment will be a § 736(b)property payment.
• C)The payment for Ted's share of goodwill will create $2,500 of ordinary income to him.
• D)The partnership can deduct any amount that is a § 736(a)payment because it will be determined without regard to partnership profits.
• E)All statements are false.

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Definitions:

Critical Value

A threshold in a statistical test that defines the boundary for deciding whether an observed statistic is extreme enough to reject the null hypothesis.

Alpha

A threshold value used in hypothesis testing to determine the significance level at which the null hypothesis is rejected in favor of the alternative hypothesis.

Non-directional Hypothesis

A hypothesis that does not predict the specific direction of the difference or relationship, only that one exists.

T-statistic

A statistic calculated from sample data used to assess the plausibility of the null hypothesis in t-tests.