Ed's Adjusted Basis in His Partnership Interest at the Beginning

Multiple Choice

Ed's adjusted basis in his partnership interest at the beginning of the tax year is $35,000. The partnership has operating income of $20,000 for the current year. Ed is a 50% partner, and he receives a current distribution of $40,000 cash this year. What is (are) the tax effect of these events?
I.Ed recognizes $10,000 of ordinary income from the partnership for the year.
II.Ed recognizes $40,000 of ordinary income due to the distribution.
III.Ed's adjusted basis in his partnership interest at the close of the tax year is zero.
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A) Statements II and III are correct.
B) Only statement I is correct.
C) Statements I, II, and III are correct.
D) Only statement III is correct.
E) Statements I and III are correct.