Question

The PW partnership's balance sheet includes the following assets immediately before it liquidates:

	Basis		FMV
Cash	$10,000		$10,000
Unrealized receivables	-0-		10,000
Total	$10,000		$20,000

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?

Multiple Choice

• $0.

• $5,000 capital gain.

• $5,000 ordinary income.

• $2,500 capital gain and $2,500 ordinary income.

Answer 1

Ans:$5,000 ordinary income is Correct Answer

Explanation:

1) Amount and character of Pamela's recognized gain or loss: $5,000 ordinary income

Computation of amount and character of Wade's recognized gain or loss
Particulars	Amount($)
Cash distribute to wada	10000
Less: outside basis in PW	5000
Amount and character of Wade's recognized gain or loss(ordinary income)	5000

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