76.Susan is a 1/4th partner in a Partnership. On January 1, the partnership dist

Question

76.Susan is a 1/4th partner in a Partnership. On January 1, the partnership distributes $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000), and accounts receivable with a fair value of $8,000 (inside basis of $12,000) to Susan. The partnership has no liabilities at the date of the distribution. Susan’s outside basis is $20,000. What is Susan’s basis in the distributed inventory and accounts receivable?

A. $2,000 inventory, $2,000 accounts receivable

B. $8,000 inventory, $12,000 accounts receivable

C. $0 inventory, $4,000 accounts receivable

D. $16,000 inventory, $8,000 accounts receivable

Explanation / Answer

76. Correct option is A

A. $2,000 inventory, $2,000 accounts receivable

Explanation

Susan basis in the distributed assets are $16,000 cash,$2,000 inventory,and $2,000 account receivable. She first allocate her outside basis yo the distributed assets in an amount equal to partnership basis($16,000 cash, $8,000 inventory, and $12,000 account receivable). This results in a required decrease of $16,000. She reduces the basis in account receivable by the Unrealized depriciation ($4,000). Finally, she reduces the basis of inventory and account receivable by the remaining required decrease($12,000) in proportion to their adjusted bases. This results in a decrease of $6,000 to the inventory and $6,000 to the account receivable.

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