Paul Sells One Parcel of Land (Basis of $100,000) for Its

question 193

Multiple Choice

Paul sells one parcel of land (basis of $100,000) for its fair market value of $160,000 to a partnership in which he owns a 60% capital interest. Paul held the land for investment purposes. The partnership is in the real estate development business and will build residential housing (for sale to customers) on the land (the land is inventory to the partnership) . Paul will recognize:

• A) $0 gain or loss.
• B) $36,000 ordinary income.
• C) $36,000 capital gain.
• D) $60,000 ordinary income.
• E) $60,000 capital gain.

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Definitions:

Noncash Assets

Assets that are not in the form of cash or cannot be easily converted into cash, such as property, plant, and equipment.

Liquidation Process

The procedure of closing a business and distributing its assets to claimants, often preceding dissolution.

Proposed Schedule

A preliminary plan that outlines future activities or events, awaiting approval or finalization.

Account Balances

The amount of money in a financial account, calculated by subtracting debits from credits in the account.