Alice and Joe Are Going to Form a Business Entity

question 89

Multiple Choice

Alice and Joe are going to form a business entity. Alice will contribute cash of $200,000 for a 40% ownership interest and Joe will contribute land worth $300,000 (basis of $180,000) for a 60% ownership interest. Which of the following statements is correct?

• A) If the entity is a C corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has a recognized gain of $120,000 and a basis for his stock of $300,000.
• B) If the entity is an S corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has $0 recognized gain and a basis for his stock of $180,000.
• C) If the entity is a general partnership, Alice has $0 recognized gain and a basis for her partnership interest of $152,000 ($380,000 × 40%), and Joe has $0 recognized gain and a basis for his partnership interest of
• $228,000 ($380,000 × 60%).
• D) Only a. and c. are correct.
• E) a., b., and c. are correct.

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Definitions:

Cycle Inventory

Inventory that a company holds to meet its normal sales operations, varying over the course of an operating cycle or period.

Forecasted Demand

An estimate of the quantity of a product or service that consumers will purchase in the foreseeable future.

Periodic Review

An evaluation process conducted at regular intervals to assess performance, inventory levels, or other critical factors in operations and management.

Inventory Status

This term describes the current state or levels of stock and inventory items within a business, indicating availability for sale or production use.