Jeremy Operates a Business as a Sole Proprietorship

question 108

Multiple Choice

Jeremy operates a business as a sole proprietorship. The proprietorship uses the cash method of accounting. He decides to incorporate and transfers the assets and liabilities of the sole proprietorship to the newly formed corporation in exchange for its stock. The assets, which include $10,000 of accounts receivable with a zero basis, have a basis of $20,000 and an FMV of $40,000. The liabilities include accounts payable of $12,000, which will be deductible when paid, and a note payable on medical equipment of $7,000. Jeremy's basis for his stock is

• A)$40,000.
• B)$20,000.
• C)$13,000.
• D)$8,000.

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Definitions:

Anionic

Pertaining to ions or molecules that carry a negative electric charge.

Cationic Polymerization

A type of polymerization where the growth of a polymer chain proceeds via cationic species as the propagating centers.

PhOH

Phenol, a toxic and caustic compound of benzene with an attached hydroxyl group, used as an antiseptic and in chemical manufacturing.

Poly(acrylonitrile)

A synthetic polymer made from acrylonitrile monomers, commonly used for fibers in textiles and other applications.