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Rob, Bill, and Steve form Big Company. Rob performs $45,000 of services for his 45 shares...

Rob, Bill, and Steve form Big Company. Rob performs $45,000 of services for his 45 shares of the company. Bill transferred property with a basis of $5,000 for $75,000 of stock (75 shares). Steve contributes cash of $100,000 for his 100 shares. Which of the three must recognize income in the year of the formation?

a.Bill

b.Steve, Bill

c.Rob

d.Rob, Bill

e.Steve, Rob

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Answer #1

Correct answer is option C.Rob

Bill and Steve cannot recognize income as they are just transferring property and stock.It is to be noted that recognized income will be determined by the revenue and the expenses. Since here Rob performs the services and because the service is considered as the revenue so Rob will recognize the income in the formation.

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