Alice and Joe Are Going to Form a Business Entity

question 89

Multiple Choice

Alice and Joe are going to form a business entity. Alice will contribute cash of $200,000 for a 40% ownership interest and Joe will contribute land worth $300,000 (basis of $180,000) for a 60% ownership interest. Which of the following statements is correct?

• A) If the entity is a C corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has a recognized gain of $120,000 and a basis for his stock of $300,000.
• B) If the entity is an S corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has $0 recognized gain and a basis for his stock of $180,000.
• C) If the entity is a general partnership, Alice has $0 recognized gain and a basis for her partnership interest of $152,000 ($380,000 × 40%), and Joe has $0 recognized gain and a basis for his partnership interest of
• $228,000 ($380,000 × 60%).
• D) Only a. and c. are correct.
• E) a., b., and c. are correct.

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Definitions:

Night Terrors

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Air Pollution

The presence of substances in the atmosphere that are harmful to the health of humans and other living beings, or cause damage to the climate or to materials.

Neurological Damage

Refers to harm or injury to the nervous system, impacting brain, spinal cord, or nerve function.