Colin and Reed Formed a Business Entity Several Years Ago

question 81

Essay

Colin and Reed formed a business entity several years ago.At that date,Colin's basis for his ownership interest was $40,000 and Reed's basis for his ownership interest was $50,000.Colin's profit and loss percentage is 40% and Reed's profit and loss percentage is 60%.During the intervening period,the entity has reported profits of $200,000.At the beginning of the current year,the entity had liabilities (all recourse)of $50,000.At the end of the current year,the liabilities (all recourse)had increased to $70,000.Determine Colin and Reed's basis for their ownership interest if the entity is:

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Definitions:

Liquid

Refers to assets that can be easily converted into cash with minimal impact on their value.

Shareholders' Equity

The residual interest in the assets of a corporation that remains after deducting its liabilities, representing the ownership interest of shareholders.

Intangible Asset

An asset that lacks physical substance but possesses value, such as intellectual property, brand recognition, or goodwill.

Dividends Per Share

The amount of dividend a company pays out to each shareholder for each share they own, indicating the dividend payout per individual share.