Question

Stone and Frazier decided to terminate the Woodwest Partnership as of December 31. On that date, Woodwest's balance sheet was as follows: Cash $2,000 Equipment (adjusted basis) $2,000 Capital - Stone $3,000 Capital - Frazier $1,000 The fair market value of the equipment was $3,000. Frazier's outside basis in the partnership was $1,200. Upon liquidation, Frazier received $1,500 in cash. What gain should Frazier recognize?

1) $0
2) $300
3) $250
4) $500

Answer 1

Frazier realized a gain of $300 upon receiving $1,500 in cash from the liquidation of the Woodwest Partnership, as this exceeded his outside basis of $1,200.

Step-by-step explanation:

Upon the liquidation of the Woodwest Partnership, Frazier received $1,500 in cash. Frazier's outside basis in the partnership was $1,200. To determine the gain Frazier should recognize, we subtract the outside basis ($1,200) from the cash received ($1,500), resulting in a gain of $300.

In a partnership liquidation, the partner recognizes gain or loss based on the difference between the cash received and their outside basis in the partnership interest.

Frazier's outside basis before the liquidation is $1,200. He received $1,500 in cash. Therefore, the gain Frazier should recognize is:

Gain=Cash Received−Outside Basis

Gain=Cash Received−Outside Basis

Gain=$1,500−$1,200

Gain=$1,500−$1,200

Gain=$300

Gain=$300

So, the correct answer is:

$300