Module 6-1

Homework

Question # 8

2-24-2017

At the beginning of the current year, Jorge and Adamson formed th JA partnership by transferring cash and property to the partnership in exchange for a partnership interest, with each having 50% interest. Specifically, Jorge transferred the property having a $ 60,000 FMV, a $ 22,000 adjusted basis, and subject to a $ 9,000 liability, which the partnership assumed. Adamson contributed $ 55,000 cash to the partnership. The partnership also borrowed $ 35,000 from the bank to use in its operations. All liabilities are recourse for which the partners have an equal ecomonic risk of loss. During the current year, the partnership earned $ 28,000 of net ordinary income and reinvested this amount in new property.

Requirement a. What is the partnership's and each partner's gain or loss recognized on the formation of the partnership"(If no gain or loss is recognized by a partner or the partnership, enter a "0".)

Amount of Gain or Loss

Jorge

Adamson

Partnership

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

Individual Basis in partnership Interest

Jorge

Adamson

Requirement 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 prepre the book balance sheet.

Tax Book

Cash

Contributed property

New property

Total assets

Liabilities

Capital accounts:

Jorge

Adamson

Total liabilities and capital accounts

Requirement d. Assume instead that Jorge and Adsmson 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 shareholder's and the corporation's gain or loss. (If no gain or loss is recognized by a partner or the corporation, enter a "0".)

Amount of Gain or Loss

Jorge

Adamson

Corporation

Now compute each shareholder's basis in his stock at the end of the current year.

Individual Basis in corporate stock

Jorge

Adamson