Parchment, Inc., is created with the following asset and liability contributions. Jake and Fran each receive 100 shares of Parchment common stock. Shareholder Jake Fran Assets Cash Land Basis $100,000 Fair Market Value $100,000 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. Discuss the rel- evance 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 Parch- ment was created. Discuss the effect of the sale on the financial accounting statements and the related income tax computations.