Beth Has an Outside Basis of $60,000 in the BBDE

question 38

Multiple Choice

Beth has an outside basis of $60,000 in the BBDE Partnership as of December 31 of the current year. On that date the partnership liquidates and distributes to Beth a proportionate distribution of $20,000 cash and inventory with an inside basis to the partnership of $18,000 and a fair market value of $22,000. In addition, Beth receives a desk (not inventory) which has an inside basis and fair market value of $200 and $350, respectively. None of the distribution is for partnership goodwill. How much gain or loss will Beth recognize on the distribution, and what basis will she take in the desk?

• A) $21,800 loss; $200 basis.
• B) $21,650 loss; $350 basis.
• C) $0 loss; $200 basis.
• D) $0 loss; $22,000 basis.
• E) None of the above.

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Definitions:

Accrued Interest

Interest that has been incurred but not yet paid at the end of a period.

Adjusting Entry

An accounting record made to update the financial statements to reflect transactions that have occurred but are not yet recorded.

Interest Expense

The cost incurred by an entity for borrowed funds, usually presented as an expense in the income statement.

Times Interest Earned Ratio

A metric that measures a company's ability to meet its debt obligations by comparing income before interest and taxes to interest expenses.