Sean, a Sole Proprietor, Is Engaged in a Service Business

question 28

Essay

Sean, a sole proprietor, is engaged in a service business and uses the cash basis of accounting.In the current year, Sean incorporates his business by forming Aqua Corporation.In exchange for all of its stock, Aqua receives: assets (basis of $400,000 and fair market value of $2 million), trade accounts payable of $110,000, and loan due to a bank of $390,000.The proceeds from the bank loan were used by Sean to provide operating funds for the business.Aqua Corporation assumes all of the liabilities transferred to it.

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Definitions:

Old Equipment

Machinery or tools that have been used for a long period and may be outdated or less efficient compared to newer versions.

Calculate

Calculate involves using mathematical or statistical methods to determine or assess a particular value, quantity, or outcome based on given data or parameters.

Opportunity Costs

The cost of forgoing the next best alternative when making a decision.

Relevant Costs

Costs that should be considered when making decisions, characterized by their occurrence in the future and variability depending on the decision made.