Arlen Propane, a general partnership, had the following balance sheets at Decemb
ID: 2577637 • Letter: A
Question
Arlen Propane, a general partnership, had the following balance sheets at December 31:
Basis FMV
Cash $30,000 $30,000
Inventory 20,000 30,000
Land 110,000 150,000
$160,000 $210,000
Liabilities $60,000 $60,000
Capital, Hank $60,000 $90,000
Capital, Peggy $20,000 $30,000
Capital, Bobby $20,000 $30,000
$160,000 $210,000
On January 1, the partnership distributed the land to Hank in complete liquidation of his sixty percent interest in the partnership. The land was encumbered by a $60,000 mortgage, for which Hank assumed responsibility in connection with the distribution. How much ordinary income will Hank recognize on receipt of the distribution under Code Sec. 751(b)?
a. zero
b. $90,000
c. $6,000
d. $10,000
e. none of the above
Explanation / Answer
Ordinary income Hank will recognize on receipt of the distribution = 90000+(30000-20000)*60%-(150000-60000)= 6000 Option C is correct
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