In the beginning of the current year, Barry and Irving formed the BI Partnership by transferring cash and property to the partnership in exchange for a partnership interest, with each having a 50% interest. Specifically, Barry transferred property having a $40,000FMV, a $26,000adjusted basis, and subject to a $7,000liability, which the partnership assumed. Irving contributed $45,000cash to the partnership. The partnership also borrowed $29,000from 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 $26,000of net ordinary income and reinvested this amount in new property.

Requirements:

What is the partnership's and each partner's gain or loss recognized on the formation of the partnership?

What is each partner's basis in his or her partnership interest at the end of the current year?

For the partnership, prepare a tax and book balance sheet at the end of the current year.

Assume instead that Barry and Irving 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?