a. What is the partnership's and each partner's gain or loss recognized on the formation of the partnership? b. What is each partner's basis in his or her partnership interest at the end of the current year? c. For the partnership, prepare a tax and book balance sheet at the end of the current year.
a. What is the partnership's and each partner's gain or loss recognized on the formation of the partnership? b. What is each partner's basis in his or her partnership interest at the end of the current year? c. For the partnership, prepare a tax and book balance sheet at the end of the current year.
Chapter21: Partnerships
Section: Chapter Questions
Problem 2BCRQ
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Transcribed Image Text:At the beginning of the current year, Cameron and Harold formed the CH Partnership by transferring cash and property to the partnership in exchange for a partnership interest, with each having a 50% interest.
Specifically, Cameron transferred property having a $35,000 FMV, a $32,000 adjusted basis, and subject to a $5,000 liability, which the partnership assumed. Harold contributed $60,000 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 economic risk of loss. During the current year, the partnership earned
$19,000 of net ordinary income and reinvested this amount in new property.
Read the requirements.
Transcribed Image Text:Requirements
a.
What is the partnership's and each partner's gain or loss recognized on the
formation of the partnership?
b. What is each partner's basis in his or her partnership interest at the end of the
current year?
c.
For the partnership, prepare a tax and book balance sheet at the end of the
current year.
d.
Assume instead that Cameron and Harold 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?
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