Rob, Bill, and Steve Form Big Company

question 17

Multiple Choice

Rob, Bill, and Steve form Big Company. Rob performs $45,000 of services for his 45 shares of the company. Bill transferred property with a basis of $5,000 for $75,000 of stock (75 shares) . Steve contributes cash of $100,000 for his 100 shares. Which of the three must recognize income in the year of the formation?

• A)Rob
• B)Rob, Bill
• C)Bill
• D)Steve, Bill
• E)Steve, Rob

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Definitions:

Bad Debt Expense

The recognition of receivables that are not expected to be collected, reflecting anticipated losses on credit sales.

Days' Sales in Receivables

Days' Sales in Receivables is a financial metric indicating the average number of days it takes a company to collect payment after a sale has been made, used to gauge the efficiency of a company's accounts receivable management.

Note Receivable

A financial claim against another entity that promises to pay the holder a specific sum of money on a certain date or on demand.

Promissory Note

A financial document in which one party promises in writing to pay a determinate sum of money to the other, either at a fixed or determinable future time or on demand of the payee, under specific terms.