J&J, LLC Was in Its Third Year of Operations When

question 73

Essay

J&J, LLC was in its third year of operations when J&J decided to expand the number of members from two, A & B, with equal profits and capital interests to three members, A, B, and
C.The third member, C, will contribute her financial expertise to the LLC in exchange for a 1/3 capital interest in J&J.Given the balance sheet below reflecting the financial position of J&J on the date member C is admitted, what are the tax consequences to members A, B, and C, and to J&J when C receives her capital interest? If, instead, member C receives a 1/3 profit interest, what would be the tax consequences to members A, B, and C, and to J&J?

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Definitions:

Cost of Sales

Direct costs attributable to the production of the goods sold by a company, including material and labor costs.

Inventories

The complete list of items such as property, goods in stock, or the contents of a building.

Accounts Payable

The amounts due by a company to its suppliers or creditors for goods and services received but not yet paid for.

Net Cash Inflow

The difference between the cash received and cash expended in a given period, resulting in an increase in cash holdings.