at the beginning of the current year, Able and Baker formed the AB Partnership by transferring cash and proerty to the partnership in exchange for a partnership interest, with each having a 50% interest. Specifically, Able transferred property having a $50,000 FMV, a $30,000 adjusted basis, and subject to a $10,000 liability, which the partnership assumed. Baker contributed $40,000 cash to the partnership. The partnership also burrowed $28,000 from the bank to use in its operations. All liabilities are recourse for which the partners have an equal economic risk of loss. During the current year, the partnership earned $24,000 of net ordinary income and reinvested this amount in new property.

C. For the partnership, prepare a tax and book balance sheet at the end of the current year. Begin by preparing the tax balance sheet. Then prepare the book balance sheet. Tax and Book Cash Contributed property New Property Total assets Liabilities Capital accounts: Able Baker Total liabilities & capital accounts

D. Assume instead that Able and Baker formed a corporation rather than a partnership. What is the corporation's and each shareholder's gain or loss recognized on the formation of the corporation? What is each shareholder's basis in his or her stock at the end of the current year? Compute each shareholders' and the corporation's gain or loss. Now compute each shareholder's basis in his stick at the end of the current year.