Alicia and Barry Form the AB Partnership at the Start

question 39

Multiple Choice

Alicia and Barry form the AB Partnership at the start of the current year with a land contribution by Barry and a cash contribution by Alicia.Barry's contributed property is subject to a recourse mortgage assumed by the partnership.Barry has an 80% interest in AB's profits and losses.The land has been held by Barry for the past 6 years as an investment.It will be used by AB as an operating asset in its parking lot business.Which of the following statements is correct?

• A)Immediately after formation, Alicia's basis in the partnership equals the cash contributed by Alicia.
• B)Immediately after formation, Alicia's basis in the partnership equals the cash she contributed plus her share of the recourse debt contributed by Barry.
• C)Because the debt is recourse, the constructive liquidation scenario is not applicable for determining the allocation of debt to the partners.
• D)AB's basis in the land contributed by Barry equals Barry's basis in the land immediately before the contribution date, less the amount of the recourse debt assumed by the partnership.
• E)None of the above.

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Definitions:

Inferior Good

A category of products whose demand falls when consumer income rises, showing an inverse relationship with changes in income.

Giffen Good

A good for which an increase in the price raises the quantity demanded

Hunan

A province in south-central China, known for its spicy cuisine, rich cultural heritage, and historical significance.

Inferior Good

A type of good for which demand decreases as the income of consumers increases, inversely related to income changes.