Rob and Yi Form Bluebird Corporation with the Following Investments

question 100

Multiple Choice

Rob and Yi form Bluebird Corporation with the following investments. $\begin{array}{lll}&&\text { Fair Market }\\&\text { Adjusted Basis }&\text { Value }\\ \text { From Rob-Cash}&\$400,000&\$400,000\\ \text { From Yi -Land}&500,000&440,000\\\end{array}$
Each receives 50% of Bluebird's stock. In addition, Yi receives cash of $40,000. One result of these transfers is that Yi has a:

• A) Recognized loss of $60,000.
• B) Recognized loss of $20,000.
• C) Basis of $460,000 in the Bluebird stock assuming Bluebird reduces its basis in the land to $440,000).
• D) Basis of $400,000 in the Bluebird stock assuming Bluebird reduces its basis in the land to $440,000).
• E) None of these.

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Definitions:

Gross Profit Ratio

A financial metric that shows the portion of sales revenue that exceeds the cost of goods sold, indicating efficiency in production and sales.

Loss on Purchase Commitments

A financial loss that occurs when a company commits to purchasing goods at a certain price but the market value of these goods decreases before the purchase is completed.

Continuing Operations

The segments or activities of a business expected to continue for the foreseeable future, excluding any discontinued operations.

Revenue Recognition

The accounting principle that determines the specific conditions under which revenue is recognized or accounted for.