During the current year the Newport Partnership is liquidated. Which of the following statements is correct concerning the liquidation of the partnership?
I.If only cash is distributed by the partnership, the partners must recognize a gain but cannot recognize a loss.
II.Gain is recognized only if the amount of cash and property distributed exceeds the partner's basis in the partnership.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

During the current year the Newport Partnership is liquidated. Which of the following statements is correct concerning the liquidation of the partnership?
I.If only cash is distributed by the partnership, the partners must recognize a gain but cannot recognize a loss.
II.Gain is recognized only if the amount of cash and property distributed exceeds the partner's basis in the partnership.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Statement II is correct, as gain is recognized only if the amount of cash and property distributed exceeds the partner's basis in the partnership. However, statement I is incorrect, as partners can recognize both gains and losses on the liquidation of a partnership. If the amount of cash and property distributed is less than the partner's basis in the partnership, the partner would recognize a loss. Therefore, only statement II is correct.

During the Current Year the Newport Partnership Is Liquidated