The PW Partnership's Balance Sheet Includes the Following Assets Immediately

question 54

Multiple Choice

The PW partnership's balance sheet includes the following assets immediately before it liquidates:
In complete liquidation PW distributes the cash to Pamela and the unrealized receivables to Wade (equal partners) . Pamela and Wade each have an outside basis in PW equal to $5,000. PW has no liabilities at the time of the liquidation. What is the amount and character of Wade's recognized gain or loss?
$$\begin{array} { | l | r | r | } \hline & \text { Basis } & \text { FMV } \\\hline \text { Cash } & \$ 10,000 & \$ 10,000 \\\hline \text { Unrealized receivables } & - 0 - & 10,000 \\\hline \text { Total } & \$ 10,000 & \$ 20,000 \\\hline\end{array}$$

• A) $0
• B) $5,000 capital gain
• C) $5,000 ordinary income
• D)$2,500 capital gain and $2,500 ordinary income

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Definitions:

Debris Flow

A moving mass of loose mud, sand, soil, rock, and water that travels down a slope under the influence of gravity.

Outer Weathered Zone

The outermost layer of Earth's surface that has been altered by weathering processes like wind, water, and chemical actions.

Preferential Weathering

The process where different parts of a rock weather at different rates due to variations in composition, strength, or permeability.

Fractured Rocks

Rocks that have been broken or cracked as a result of physical stress without necessarily being displaced.