Identify Which of the Following Statements Is True

question 57

Multiple Choice

Identify which of the following statements is true.

• A)A contribution of services for a partnership interest is a tax-free transaction.
• B)For federal income tax purposes, formation of a partnership is governed by Sec. 721.
• C)When a partnership assumes a liability on property contributed by a partner, the only effect on the contributing partner's basis in his or her partnership interest is that his or her basis will be increased by the amount of the liability assumed by the other partners.
• D)All of the above are false.

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Definitions:

Credit Purchase

Buying goods or services and deferring payment to a later date, typically recorded as accounts payable.

Liabilities

Economic responsibilities or liabilities a corporation has towards other entities, necessitating repayment through transferring assets like money, merchandise, or services eventually.

Assets

Economic resources controlled by a business, capable of producing value, and are expected to benefit future operations, including cash, inventory, and property.

Creditors' Claims

Rights of lenders to receive payment from a borrower or from a borrower’s assets.