AmCo and BamCo Form the AB General Partnership at the Start

question 159

Multiple Choice

AmCo and BamCo form the AB General Partnership at the start of the current year with a land contribution by BamCo and a cash contribution by AmCo. BamCo's contributed property is subject to a recourse mortgage assumed by the partnership. BamCo has an 80% interest in AB's profits and losses. The land has been held by BamCo for the past 6 years as an investment. It will be used by AB as an operating asset in its parking lot business. Which of the following statements is correct?

• A) Immediately after formation, AmCo's basis in the partnership equals the cash that it contributed .
• B) Immediately after formation, AmCo 's basis in the partnership equals the cash that it contributed plus AmCo's share of the recourse debt contributed by BamCo.
• C) Because the debt is recourse, it can be allocated only to the general partners if one of them personally guarantees the debt.
• D) AB's basis in the land contributed by BamCo equals BamCo's basis in the land immediately before the contribution date, less the amount of the recourse debt assumed by the partnership.
• E) None of these statements is correct.

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Definitions:

Bond

A financial device signifying a loan provided by an investor to a borrower, usually in the form of corporations or government entities.

Buyer Pays

A term indicating that the buyer is responsible for the costs of goods shipping, insurance, and any related expenses incurred until delivery is complete.

Accrued Interest

Interest that has accumulated over time but has not yet been paid or received.

Bond Indenture

A legal contract between a bond issuer and a bondholder that specifies the terms of the bond, such as its maturity date, face value, coupon rate, and any special features.