Rondo and his business associate, Larry, are considering forming a business entity called R&L, but they are unsure about whether to form it as a C corporation, an Scorporation, or an LLC taxed as a partnership. Rondo and Larry would each invest $150,000 in the business. Thus, each owner would take an initial basis in his ownershipinterest of $150,000 no matter which entity type is formed. Shortly after the formation of the entity, the business borrowed $50,000 from the bank. If applicable, this debtwill be shared equally between the two owners. a. After taking the loan into account, what is Rondo's tax basis in his R&L stock if R&L is formed as a C corporation? b. Aftertaking the loan into account, what is Rondo's tax basis in his R&L stock if R&L is formed as an S corporation? c. After taking the loan into account, what is Rondo's tax basis inhis R&L ownership interest if R&L is formed as an LLC and taxed as a partnership?

The objective of the question is to determine Rondo's tax basis in his R&L stock under three…

Answered: Rondo and his business associate,…

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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Susan Casulla, Margie Landicho and Christine Supapo decided to incorporate their business and invited Irene Beltran and Eleanor Eno to join with them. The partnership shall transfer all assets and liabilities to the corporation. Irene Beltran and Eleanor Eno will purchase 250 each of the corporation’s ordinary share. The corporation is authorized to issue 5,000 shares at P50.00 par value per share. The post-closing trial balance after adjustments in preparation for incorporation follows: Yummy Cakes and Pastries Post-closing Trial Balance September 30, 20A Debit Credit Cash 40,000 Merchandise Inventory 70,000 Furniture and Equipment 100,000 Accumulated Depreciation 20,000 Accounts Payable…
Carney, Pierce, Menton, and Hoehn are partners who share profits and losses on a 4:3:2:1 basis, respectively. They are beginning to liquidate the business. At the start of this process, capital balances are Carney, capital $ 79,000 Pierce, capital 32,700 Menton, capital 62,000 Hoehn, capital 25,700 Which of the following statements is true? (1)Carney will collect a portion of any available cash before Hoehn receives money. (2)The first available $7,700 will go to Hoehn. (3)The first available $10,600 will go to Manton. (4) Carney will be the last partner to receive any available cash.
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, 2019, O’Donnell invests a building worth $74,000 and equipment valued at $44,000 as well as $32,000 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 $6,000, whichever is larger. All remaining income is credited to Reese.Neither partner is allowed to withdraw funds from the partnership during 2019.…
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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