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

question 94

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?

• 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:

Profitable Output

The level of production at which a business or economic activity generates revenue that exceeds its operational costs.

Short Run

A period in economics where at least one input is fixed, limiting the ability to adjust production levels rapidly.

Price

The amount of money required to purchase a good or service, determined by factors such as supply and demand.

Shutdown Point

The level of output and price at which a firm's total revenue is equal to its total variable costs, below which the firm would lose more money by continuing to operate than by shutting down.