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Slate Quarry, a general partnership, had the following balance sheets at Decembe

ID: 2577636 • Letter: S

Question

Slate Quarry, a general partnership, had the following balance sheets at December 31:

Basis                                                                      FMV

Cash                                                                      $30,000                                                                 $30,000

Inventory 20,000                                                                    30,000

Land 50,000                                                                    90,000

$100,000                                                               $150,000

Capital, Fred                                                      $60,000                                                                 $90,000

Capital, Wilma                                                   $20,000                                                                 $30,000

Capital, Barney                                                  $20,000                                                                 $30,000

$100,000                                                               $150,000

On January 1, the partnership distributed the inventory to Barney in complete liquidation of his twenty percent interest in the partnership. How much ordinary income will the partnership recognize on receipt of the distribution under Code Sec. 751(b)?

a. zero

b. $10,000

c. $2,000

d. $8,000

e. None of the above

Explanation / Answer

Ordinary income to be recognized on receipt of the distribution =(30000-20000)*20% = $2000 Option C is correct

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