Is it me or is there some funny math going on here in this MCQ? Where is this extra 4,000 coming from? 174,000-34,000 = 144,000? This is the answer explanation:
When a partner sells his interest in a partnership and he is relieved from his share of partnership liabilities, then the amount realized is the amount of cash received plus his share of liabilities. Carr’s amount realized will be $174,000. Carr’s adjusted basis of $34,000, which also includes his share of the partnership liabilities, is subtracted from the amount realized. This leaves a realized gain of $144,000.
To the extent any of the realized gain is attributable to unrealized receivables or substantially appreciated inventory, there will be gain recognized as ordinary income. In this case, there are unrealized receivables with an adjusted basis of $0 and a fair market value of $420,000. Carr’s share of the $420,000 is $140,000 ($420,000 ÷ 3). Carr will have ordinary income of $140,000 and capital gain of $4,000 from the sale of his partnership interest.
Amount realized: Cash received $154,000
+ Liability relief ($60,000 ÷ 3) 20,000
= Total amount realized $174,000
Less: Adjusted basis: Carr, capital account $ 14,000
+ Carr’s share of partnership liabilities 20,000
= Carr’s adjusted basis in the partnership (34,000)
Realized gain $140,000
Gain recognized as ordinary income due to unrealized
receivables ($420,000 ÷ 3) $140,000
Gain recognized as capital gain 4,000
Total realized and recognized gain $144,000
BEC 7/14 - PASS
FAR 10/14 - PASS
AUD 1/15 - PASS
REG 4/15 - PASS
AZ license - Official 8/20/2015
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