Problem related to forming a business entity


Problem:

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 for a 60% ownership interest. Joe's basis for the land is $180,000. 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 ï?´ 40%), and Joe has $0 recognized gain and a basis for his partnership interest of $228,000 ($380,000 ï?´ 60%).

d. Only a and c are correct.

e. a, b, and c are correct.

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Accounting Basics: Problem related to forming a business entity
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