Question

34

Kim contributes land (basis of $190,000; fair market value of $250,000) to a business entity in exchange for 100% of the stock. During the first year of operation, the entity earns a profit of $75,000. At the end of the first year, the entity has outstanding liabilities of $30,000 ($20,000 recourse and $10,000 nonrecourse). Select from the following:

a.If the entity is an S corporation, Kim's basis for her stock at the end of the first year is $345,000 ($250,000 + $75,000 + $20,000) and her at-risk basis is $345,000.

b.If the entity is a C corporation, Kim's basis for her stock at the end of the first year is $265,000 ($190,000 + $75,000) and her at-risk basis is $265,000.

c.If the entity is a partnership, Kim's basis for her partnership interest (outside basis) at the end of the first year is $355,000 ($250,000 + $75,000 + $30,000) and her at-risk basis is $345,000 ($250,000 + $75,000 + $20,000).

d.Only "If the entity is a C corporation, Kim's basis for her stock at the end of the first year is $265,000 ($190,000 + $75,000) and her at-risk basis is $265,000" and "If the entity is an S corporation, Kim's basis for her stock at the end of the first year is $345,000 ($250,000 + $75,000 + $20,000) and her at-risk basis is $345,000" are correct.

e."If the entity is a C corporation, Kim's basis for her stock at the end of the first year is $265,000 ($190,000 + $75,000) and her at-risk basis is $265,000", "If the entity is a partnership, Kim's basis for her partnership interest (outside basis) at the end of the first year is $355,000 ($250,000 + $75,000 + $30,000) and her at-risk basis is $345,000 ($250,000 + $75,000 + $20,000)", and "If the entity is an S corporation, Kim's basis for her stock at the end of the first year is $345,000 ($250,000 + $75,000 + $20,000) and her at-risk basis is $345,000" are incorrect.

PLEASE ENSURE TO GIVE AN EXPLANATION ON THE QUESTION SO I CAN ANSWER A SIMILAR ONE FOR MY EXAM THANK YOU

Answer 1

- Page 1 of the entity, is a c corporation. Ericka's basis for her stock the first year is 265,000 Exgrees (190,000+75,00) | 2 herat-risk basis is 265,000 If the entity is a partnership Ericka s basis foto her partnership interest (outside basis) at the end of first year 355,000 (250.000 + 75000 7 30.000) and her at-riske basis is 345000[250,000 475.com -+ 20,000 If the entity is an so comportion

- Page 1 of the entity, is a c corporation. Ericka's basis for her stock the first year is 265,000 Exgrees (190,000+75,00) | 2 herat-risk basis is 265,000 If the entity is a partnership Ericka s basis foto her partnership interest (outside basis) at the end of first year 355,000 (250.000 + 75000 7 30.000) and her at-riske basis is 345000[250,000 475.com -+ 20,000 If the entity is an so comportion