In X1, Adam and Jason Formed ABC, LLC, a Car

question 80

Multiple Choice

In X1, Adam and Jason formed ABC, LLC, a car dealership in Kansas City. In X2, Adam and Jason realized they needed an advertising expert to assist in their business. Thus, the two members offered Cory, a marketing expert, a 1/3 capital interest in their partnership for contributing his expert services. Cory agreed to this arrangement and received his capital interest in X2. If the value of the LLC's capital equals $180,000 when Cory receives his 1/3 capital interest, which of the following tax consequences does not occur in X2?

• A) Cory reports $60,000 of ordinary income in X2.
• B) Adam, Jason and Cory receive an ordinary deduction of $20,000 in X2.
• C) Adam and Jason receive an ordinary deduction of $30,000 in X2.
• D) Cory reports $60,000 of ordinary income in X2, and Adam and Jason receive an ordinary deduction of $30,000 in X2.

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Definitions:

Revenue Recognition

The accounting principle governing when revenue is considered earned and can be recorded in the financial statements.

Risk Of Ownership

The potential for loss resulting from owning an asset, including factors such as depreciation, obsolescence, and market volatility.

Service Revenue

Income earned from providing services rather than selling physical products.

Future Economic Benefits

Refers to potential benefits to be received by an entity from its assets, contributing to its revenue.