Erica and Brett Decide to Form Their New Motorcycle Business

question 39

Multiple Choice

Erica and Brett decide to form their new motorcycle business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $43,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $3,600 and a building he bought as a storefront for the motorcycles. The building has an FMV of $38,000 and an adjusted basis of $23,000 and is secured by a $28,000 nonrecourse mortgage that the LLC will assume. What is Brett's outside tax basis in his LLC interest?

• A)$30,500
• B)$31,600
• C)$35,500
• D)$36,600

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Definitions:

Normal Curve

The normal curve, or normal distribution, is a bell-shaped curve that shows the probability distribution of a continuous random variable, where most occurrences take place near the mean.

Marginal Investor

An investor whose actions might influence the market price of a security and who is typically sensitive to changes in risk levels or return.

Required Rate

The minimum return an investor expects to achieve by investing in a particular asset, also known as the required rate of return.

Expected Rate

The return that an investor anticipates or estimates will be achieved over a certain period on an investment.