In Which of the Following Independent Situations Would the Transaction

question 54

Multiple Choice

In which of the following independent situations would the transaction most likely be characterized as a disguised sale?

• A)Partner George contributes appreciated property to the GMVV Partnership,and three years later GMVV distributes $100,000 proportionately to all the partners.
• B)Barbara contributes property with a basis of $20,000 and a fair market value of $50,000 to the BGB Partnership in exchange for a 20% interest therein.The partnership agrees to distribute $20,000 to Barbara in fifteen months,if partnership cash flows from operations exceed $100,000 at that time.The partnership does not expect to produce operating cash flows of over $100,000 for at least five years.
• C)Bill contributes appreciated property to the BLP Partnership.Thirty months later,he receives a distribution from the partnership of $15,000 cash.None of the other partners received a distribution.There was no agreement that BLP would make the distribution,and Bill would have made the contribution whether or not the partnership made the distribution.
• D)None of the above transactions will be treated as a disguised sale.
• E)a. ,b. ,and c.are all treated as disguised sales.

---

Definitions:

Bad Debts Expense

An expense account to record accounts receivable that a company does not expect to collect.

Allowance for Doubtful Accounts

A contra-asset account designed to predict the value of receivables that are expected to be uncollectible.

Direct Method

A cash flow statement preparation approach that lists major cash receipts and payments during the period.