The PQRS Partnership owns the following assets on December 30 of the current year:

The partnership has no liabilities, and each partner’s basis in his or her partnership interest is $25,000. On December 30 of the current year, Paula receives a current distribution ofinventory having a $10,000 FMV, which reduces her partnership interest from one-fourth to one-fifth. What are the tax consequences of the distribution to the partnership, Paula, and the other partners?

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Assets Partnership's Basis FMV Cash S 20,000 S 20,000 Receivables 40,000 Inventory 80,000 100,000 Total $100,00 S160,000