In a Proportionate Liquidating Distribution, Scott Receives a Distribution of $20,000

question 82

Multiple Choice

In a proportionate liquidating distribution, Scott receives a distribution of $20,000 cash, accounts receivable (basis of $0 and fair market value of $40,000) , and land (basis of $30,000 and fair market value of $60,000) . In addition, the partnership repays all liabilities, of which Scott's share was $20,000. Scott's basis in the entity immediately before the distribution was $100,000. As a result of the distribution, what is Scott's basis in the accounts receivable and land, and how much gain or loss does he recognize?

• A) $0 basis in accounts receivable; $30,000 basis in land; $0 gain or loss.
• B) $0 basis in accounts receivable; $60,000 basis in land; $0 gain or loss.
• C) $40,000 basis in accounts receivable; $30,000 basis in land; $0 gain or loss.
• D) $40,000 basis in accounts receivable; $60,000 basis in land; $20,000 gain.
• E) $0 basis in accounts receivable; $80,000 basis in land; $20,000 loss.

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Definitions:

Accounts Receivable

Funds that clients or customers are required to pay to a business for products or services delivered on credit.

Sales Revenues

The income received by a company from its sales of goods or services before any expenses are subtracted.

Accounts Payable

An account representing short-term liabilities to suppliers or creditors for goods and services received but not yet paid for.

Inventory

The goods and materials that a business holds for the ultimate goal of resale or production.