1. Parchment, Inc., is created with the following asset and liability contributions.

Jake and Fran each receive 100 shares of Parchment common stock.

Shareholder 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.

a. Prepare a financial accounting balance sheet for Parchment. Does financial accounting take a conduit or entity perspective to the formation of a business venture?

b. Prepare a tax balance sheet for Parchment. Does the tax law take a conduit or entity perspective to the formation of a business venture?

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 statements and the related income tax computations.