Question

Which of the following statements correctly reflects one of the rules regarding proportionate liquidating distributions?

Question 27 options:

a) Assets are deemed distributed in the following order: cash, unrealized receivables and inventory, and finally, capital assets.
b) A partner’s basis in distributed unrealized receivables is the lesser of the partnership’s basis in the receivables or their fair market value.
c) The basis of unrealized receivables cannot be stepped up to their fair market value unless the partner has adequate unabsorbed basis.
d) Relief of liabilities is treated as a distribution of cash but only to the extent that the cash distribution does not exceed the partner’s basis in the partnership interest.
e) The partner can recognize gain but not loss on a proportionate liquidating distribution.

Answer 1

In proportionate liquidating distributions, assets are distributed in a specific order: cash, unrealized receivables and inventory, and finally, capital assets. Therefore, the correct option is A.

Step-by-step explanation:

The correct statement reflecting one of the rules regarding proportionate liquidating distributions is a) Assets are deemed distributed in the following order: cash, unrealized receivables and inventory, and finally, capital assets.

When a partnership is being liquidated, the assets are distributed in a specific order. First, cash is distributed to the partners, followed by the distribution of unrealized receivables and inventory. Finally, capital assets are distributed. This order of distribution helps ensure that the distributions are made in a fair and proportionate manner.

This rule ensures that partners receive their share of the partnership assets based on their ownership interest and the value of the assets being distributed.