Melanie and Sonny Form Bird Enterprises

question 32

Essay

Melanie and Sonny form Bird Enterprises.Sonny contributes cash of $100,000 and land worth $50,000 (adjusted basis of $30,000).Melanie contributes land and building worth $280,000 (adjusted basis of $200,000)and performs services worth $20,000 associated with the formation of the entity.Melanie receives a two-thirds ownership interest and Sonny receives a one-third ownership interest.Determine the tax consequences of the contributions to Melanie,Sonny,and Bird if the business is:

---

Definitions:

Slope

The measure of the steepness or incline of a line, defined as the ratio of the vertical change to the horizontal change between two points on the line.

API Gravity Degrees

A measure used in the petroleum industry that expresses the density of petroleum liquids relative to water; higher API gravity indicates a lighter oil.

Standardized Residuals

The differences between observed and predicted values, scaled by an estimate of standard deviation.

Covariances

A measure of the degree to which two variables change with respect to each other, indicating the direction of their linear relationship.