On December 31 of Last Year, Alex and Jackson Become

Multiple Choice

On December 31 of last year, Alex and Jackson become equal partners in the AJ Partnership with assets having a tax basis and FMV of $120,000. The partnership, which deals in securities, had no liabilities at the end of last year. In January of this year, Franklin contributes his investment securities with an FMV of $60,000 (purchased two years ago at a cost of $45,000) to become an equal partner in the new AJF Partnership. The securities, which are inventory to the partnership, are sold on December 15 of the current year for $90,000. What amount and character of gain from the sale of these securities should be allocated to Franklin?

A) $10,000 ordinary income
B) $15,000 capital gain and $10,000 ordinary income
C) $25,000 capital gain
D) $25,000 ordinary income