Individuals Adam and Bonnie Form an S Corporation,with Adam Contributing

question 36

Essay

Individuals Adam and Bonnie form an S corporation,with Adam contributing cash of $100,000 for a 50% interest,and Bonnie contributing appreciated ordinary income property with an adjusted basis of $20,000 and a fair market value of $100,000.
a.Determine Bonnie's initial basis in her stock,assuming that she receives a 50% interest.
b.​
The S corporation sells the property for $120,000.Determine Adam's and Bonnie's stock basis after the sale.
c.Determine Adam's and Bonnie's gain or loss if the company is liquidated.

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Definitions:

Double-Entry Accounting

An accounting system in which every business transaction is recorded in an asset account and a liability or owner’s equity account so that the system will balance.

Owner's Equity

The residual interest in the assets of a company after subtracting liabilities, often referred to as shareholder's equity in a corporation.

Liabilities

Financial obligations or debts that a company or individual owes to others.

Asset

A resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide future benefit.