Alice and Joe Are Going to Form a Business Entity

question 89

Multiple Choice

Alice and Joe are going to form a business entity. Alice will contribute cash of $200,000 for a 40% ownership interest and Joe will contribute land worth $300,000 (basis of $180,000) for a 60% ownership interest. Which of the following statements is correct?

• A) If the entity is a C corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has a recognized gain of $120,000 and a basis for his stock of $300,000.
• B) If the entity is an S corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has $0 recognized gain and a basis for his stock of $180,000.
• C) If the entity is a general partnership, Alice has $0 recognized gain and a basis for her partnership interest of $152,000 ($380,000 × 40%), and Joe has $0 recognized gain and a basis for his partnership interest of
• $228,000 ($380,000 × 60%).
• D) Only a. and c. are correct.
• E) a., b., and c. are correct.

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