Erica and Brett decide to form their new motorcycle business as an LLC. Each willreceive an equal profits (loss) interest by contributing cash, property, or both. In additionto the members' contributions, their LLC will obtain a $46,000 nonrecourse loan fromFirst Bank at the time it is formed. Brett contributes cash of $4,200 and a building hebought as a storefront for the motorcycles. The building has an FMV of $41,000 and anadjusted basis of $26,000 and is secured by a $31,000 nonrecourse mortgage that theLLC will assume. What is Brett's outside tax basis in his LLC interest?Multiple ChoiceO $38,500O $40,200O $33,500$35,200

Limited liability company (LLC)LLC full form is limited liability company. It is another form of…

Answered: 3 Erica and Brett decide to form their…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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While James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing careers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes for weddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of 2022, and each contributed $60,000 in exchange for a 50 percent ownership interest. GTE also borrowed $240,000 from a local bank. Both James and Paul had to personally guarantee the loan. Both owners provide significant services for the business. The following information pertains to GTE's 2022 activities: GTE uses the cash method of accounting (for both book and tax purposes) and reports income on a calendar-year basis. GTE received $500,000 of sales revenue and reported $230,000 of cost of goods sold (it did not have any ending inventory). GTE paid $35,000 compensation to James, $35,000 compensation to Paul, and $45,000 of compensation to other employees…
Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O’Donnell, a local merchant, to contribute the capital to form a partnership. On January 1, 2022, O’Donnell invests a building worth $54,000 and equipment valued at $20,000 as well as $16,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O’Donnell to join this partnership, Reese draws up the following profit and loss agreement: O’Donnell will be credited annually with interest equal to 10 percent of the beginning capital balance for the year. O’Donnell will also have added to his capital account 10 percent of partnership income each year (without regard for the preceding interest figure) or $5,000, whichever is larger. All remaining income is credited to Reese. Neither partner is allowed to withdraw funds from the partnership during 2022.…
Tom and Rick plan to form T & S Investments, a general partnership, to remodel and operate a small shopping mall in a building that is owned by Rick. They have agreed that Tom will contribute $50,000 cash for a 50% interest. For the other 50% interest, Rick intends to contribute the building and land, which has a FMV of $180,000 (building $150,000 and land $30,000) and is subject to a fully recourse mortgage liability of $130,000 incurred to purchase the building. Rick's depreciated basis in the building is $46,400 and accumulated depreciation prior to the building's contribution is $63,600. The building and land were purchased on June 5, 1995 for $123,600 (building $110,000 and land $13,600). Will Rick's contribution of property subject to a liability exceeding the basis of the property qualify for non-recognition treatment? What is the partnership's basis in the property? What is Rick's basis in his partnership interest? What is Tom's basis in his partnership interest?

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