Elijah Contributes Land (Basis of $80,000; Fair Market Value of $400,000)

question 126

Multiple Choice

Elijah contributes land (basis of $80,000; fair market value of $400,000) for a 20% interest in a partnership. The land is subject to a mortgage of $50,000 which the partnership assumes. As a result of the transfer, Elijah:

• A)Must recognize a gain of $40,000.
• B)Has a basis in the partnership of $40,000.
• C)Has a basis in the partnership of $70,000.
• D)Has a basis in the partnership of $360,000.
• E)None of the above.

Account for receivables using the allowance method, including recognition, write-off, and recovery.

Recognize revenue allocation for bundled sales involving products and services.

Assess the internal control system for handling cash and suggest improvements.

Execute bank reconciliations and related journal entries.

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Definitions:

Insurance Company

An organization that offers risk management in the form of insurance contracts, pledging to compensate for specific potential future losses in exchange for periodic payments.

Liquidation Bankruptcy

A legal process designed to pay off the debts of an individual or company by liquidating their assets, often referred to as Chapter 7 bankruptcy in the United States.

Creditor

An individual or organization to which money is owed by a debtor, usually arising from a financial transaction or agreement.

Bankruptcy Trustee

A person appointed by the bankruptcy court to administer the debtor’s estate in the interests of both the debtor and the creditors. The basic duty of the bankruptcy trustee is to collect and reduce to cash the estate property and to close up the estate as speedily as is compatible with the best interests of the parties.