Question

In a partnership making an operating distribution, will the partnership recognize gain or loss?

1) Gain
2) Loss
3) Cannot be determined
4) Not applicable

Answer 1

In a partnership making an operating distribution, the partnership may recognize a gain or a loss, but it depends on the specific circumstances of the distribution.

Step-by-step explanation:

In a partnership making an operating distribution, the partnership may recognize a gain or a loss.

If the partnership receives more money from the distribution than the partners' capital account balance, it would recognize a gain. This gain increases each partner's capital account balance. On the other hand, if the partnership receives less money than the partners' capital account balance, it would recognize a loss. This loss reduces each partner's capital account balance.

Therefore, the answer to the question is: 3) Cannot be determined, as it depends on the specific circumstances of the distribution.