C is corrent. The requirement is to determine which statements are correct concerning the division of a partnership. In a division of a partnership, a resulting partnership is deemed to be a continuation of the prior partnership if the resulting partnership’s partners had a more than 50% interest in the prior partnership. Partnership Adams and Dudley is a continuation of the former partnership, as Adams and Dudley owned 55% (45% + 10%) of the former partnership. Since Baxter and Carter owned only 45% (30% + 15%) of the prior partnership, partnership Baxter & Carter is a new partnership. As a new partnership, partnership Baxter & Carter must adopt a taxable year, as well as make other tax accounting elections.
A is incorrect. Baxter and Carter is considered a new partnership.
B is incorrect. Adams and Dudley is a continuation of the former partnership, and Baxter and Carter is considered a new partnership.
D is incorrect. Adams and Dudley is a continuation of the former partnership.
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