In a Proportionate Liquidating Distribution, Sara Receives a Distribution of $40,000

Multiple Choice

In a proportionate liquidating distribution, Sara receives a distribution of $40,000 cash, accounts receivable (basis of $0, fair market value of $30,000) , and inventory (basis of $50,000, fair market value of $60,000) . Her basis in the entity immediately before the distribution was $120,000. As a result of the distribution, what is Sara's basis in the accounts receivable and inventory, and how much gain or loss does she recognize?

A) $0 basis in accounts receivable; $50,000 basis in inventory; $30,000 loss.
B) $0 basis in accounts receivable; $80,000 basis in inventory; $0 gain or loss.
C) $40,000 basis in accounts receivable; $40,000 basis in inventory; $0 gain or loss.
D) $30,000 basis in accounts receivable; $50,000 basis in inventory; $30,000 loss.
E) $30,000 basis in accounts receivable; $60,000 basis in inventory; $10,000 gain.