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If a service oriented partnership has the following balance sheet, what are P-1's (a general partner) tax consequences of receiving a $20,000 cash payment as a retiring partner. Assume that P-1 is an original partner.

Cash A/B of 201,000 FMV 201,000
Unrealized Receivables A/B 0, FMV 9,000
Land: A/B of 10,000 FMV 15,000
Capital account for each of the 3 partners: A/B 10,000 FMV 15,000

All of the following statements are true except one, which one is FALSE?

A. The amount paid for good will is $5,000

B. P-1's outside adjusted basis is subtracted from the value of the cash and land to obtain the portion of the gain that is capital gains

C. P-1 has ordinary gain of $8,000

D. The amount of capital gains is $7,000

Accounting Basics, Accounting

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