Parchment, Inc., is created with the following asset and liability contributions. Jake and Fran each receive 100 shares of Parchment common stock.

STOCKHOLDER	ASSETS	BASIS	FAIR MARKET VALUE
JAKE	CASH	100,000	100,000
FRAN	LAND	40,000	120,000*

*The land is subject to a mortgage of $20,000 that Parchment assumes.

Prepare a financial accounting balance sheet for Parchment. Discuss the relevance of conduit theory and entity theory in the creation of Parchment.

b. Prepare a tax balance sheet for Parchment. Discuss the relevance of conduit theory and entity theory in the creation of Parchment.

c. Assume that Parchment sells the land for $150,000 four months after Parchment was created. Discuss the effect of the sale on the financial accounting balance sheet and the tax balance sheet.