Zip and Rick form Rug Corporation with the following investments. Zip transfers machinery (basis of $40,000 and fair market value of $100,000) and Rick transfers land (basis of $20,000 and fair market value of $90,000) and services rendered (worth $10,000) in organizing the corporation. Each is issued 25 shares in Rug Corporation. With respect to the transfers:

Zip and Rick form Rug Corporation with the following investments. Zip transfers machinery (basis of $40,000 and fair market value of $100,000) and Rick transfers land (basis of $20,000 and fair market value of $90,000) and services rendered (worth $10,000) in organizing the corporation. Each is issued 25 shares in Rug Corporation. With respect to the transfers:

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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On January 1, FRED and GEMMO formed a partnership by contributing cash of P300,000 and P360,000 , respectively . On August 1, Fred contributed an additional cash of P45,000 . On June 1 , Gemmo contributed machinery with a fair market value of P60,000 and a net book value of P90,000 when contributed . On July 1, Fred and Gemmo each withdrew 30,000 . 1. What is the average capital of Fred ? 2. What is the average capital of Gemmo?
Carlota and Dave formed an S corporation; Carlota owns 75% of the out-standing shares, and Dave owns the rest. When the entity's AAA balance is $1,000,000, it distributes an asset to each shareholder; the basis of each asset to the corporation is $172,500. Carlota's asset is worth $241,500, and Dave's is worth $207,000. a. How much gain, if any, does the the corporation recognize as a result of the distribution? 103,500 V b. By how much, if any, does the distribution increase Dave's gross income? $ c. By how much, if any, does the distribution increase Carlota's gross income? $
Carl made the following transfers during the current year. What are Carl’s taxable gifts for the current year? 1.Transferred $900,000 in cash and securities to a revocable trust, life estate to himself and remainder interest to his three adult children by a former wife. 2.In consideration of their upcoming marriage, gave Maria a $90,000 convertible. 3.Purchased a $100,000 certificate of deposit listing title as “Carl, payable on proof of death to Maria.” 4.Established a joint checking account with his now-wife, Maria, in December of the current year with $30,000 of funds he inherited from his parents. In January of the following year, Maria withdrew $18,000 of the funds. 5.Purchased for $80,000 a paid-up insurance policy on his life (maturity value of $500,000). Carl designated Maria as the beneficiary. 6.Paid $23,400 to a college for his niece Mindy’s tuition and $11,000 for her room and board. Mindy is not Carl’s dependent. 7.Gave his aunt Betty $52,000 for her heart bypass…
Sue and Andrew form SA general partnership. Each person receives an equal interest in the newly created partnership. Sue contributes $16,000 of cash and land with an FMV of $61,000. Her basis in the land is $26,000. Andrew contributes equipment with an FMV of $18,000 and a building with an FMV of $39,000. His basis in the equipment is $14,000, and his basis in the building is $26,000. How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew?
On January 1, FRED and GEMMO formed a partnership by contributing cash of P405,000 and P270,000, respectively. On February 1. Fred contributed an additional P135,000. On May 1, Gemmo contributed machinery with a fair market value of P90,000 and a net book value/cost of P75,000 when contributed. On November 1 Gemmo contributed an additional P45,000 cash to the partnership. Profit or loss agreement are as follows: • Interest at 6% is allowed on average capital balances; • Salaries of P2,700 per month to each partner; • Bonus to Fred of 10% of net income; and • Balance to be divided in the ratio of 6:4 to Fred and Gemmo, respectively. ASSUMPTIONS: 1. The company had a revenue of 458,300 and expenses of 227, 900 resulting in a profit of 257,400. 2. The company had a revenue of 227, 900 and expenses of 458,300 resulting in a loss of 257,400. 3. The company had a revenue of 458,300 and expenses of 406,325 resulting in a profit of 51,975. Required: 1. Table showing the computation of average…
Cheryl and Joseph formed a partnership. Cheryl received a 50% interest in partnership capital and profits in exchange for contributing land with a basis of $140,000 and a fair market value of $300,000. Joseph received a 50% interest in partnership capital and profits in exchange for contributing $300,000 of cash. Three years after the contribution date, the land contributed by Cheryl is sold by the partnership to a third party for $380,000. How much taxable gain will Cheryl recognize from the sale? a) $40,000 b) $120,000 c) $160,000 d) $200,000 e) None of the above
Kevan, Jerry, and Dave formed Albee LLC. Jerry and Dave each contributed $245,000 in cash. Kevan contributed the following assets: Basis Fair Market Value Kevan: Cash $15,000 $15,000 Land* 120,000 440,000 Totals $135,000 $455,000 *Nonrecourse debt secured by the land equals $210,000 Each member received a 33.33 percent capital and profits interest in the LLC. (Leave no answer blank. Enter zero if applicable. Do not round intermediate calculations.) d. What is Albee LLC’s tax basis in its assets? Tax basis
In 2021, Fred and Felix pooled their resources to form F&F Partnership. They will both work actively in the business and they have agreed to share profits and losses 50-50. To form this partnership, Fred contributed manufacturing equipment with a FMV of $1,000,000 and a basis of $100,000. Felix contributed $400,000 of cash and land with a fair market value of $800,000 and a basis of $500,000. The equipment contributed by Fred was not encumbered by debt. The land contributed by Felix had a $200,000 mortgage (qualified nonrecourse debt) which was assumed by F&F Partnership. In 2023, when Fred’s outside basis is $180,000, Fred received a proportionate non-liquidating distribution as follows: Adjusted basis Fair Market Value Cash $130,000 $130,000 Inventory 20,000…
Mr. A, Mr. B and Mr. C agreed to form a partnership. Mr. A will contribute cash in the amount of P100,000; Mr. B will contribute land which originally costP 500,000 with a fair Market value of P 1,000 and mortgage payable in the amount of P 200,000; and Mr. C contributed a brand new equipment amounting to P 300,000. Based on the following contributions. The total capital contribution of Mr. B is O P 300,000 OP1.000,000 OP1200,000 O P 800,000
Henry and Ana each own 50% interest in a business entity. Henry contributed $200,000 for her ownership interest and Ana contributed Land worth $200,000 (adjusted basis of $150,000) for her ownership interest. Several months after the formation of the entity, the land contributed by Ana is sold by the business entity for $220,000. if the business entity is a partnership, Ana share of the recognized gain from sale of the land by the partnership is $35,000 true or false Kindly explain it properly
On July 1, 2019, Olga, Mega and Giga formed the OMG Partnership, by combining their separate business proprietorships. Olga contributed cash of P150,000. Mega contributed property with a carrying amount of P108,000, original cost of P120,000. and a fair value of P240,000. The partnership accepted responsibility for the P105,000 mortgage attached to the property. Giga contributed equipment with a carrying amount of P90,000, original cost of P225,000 and fair market value of P165,000. The partnership agreement specifies that profits and losses are to be shared equally. How much is the investment of Mega? Using the information in no. 2, and assuming capital are based on their profit and loss agreement, how much is the implied bonus? *
Greene and Whatley formed a partnership at the beginning of the year, agreeing to share capital and profits equally. Greene contributed $50,000 cash. Whatley contributed land with an adjusted basis to him of $20,000 and a fair market value of $54,000 at the time of contribution. The land is subject to a $8,000 mortgage, which is assumed by the partnership. Whatley's tax basis in the partnership after the contribution is A. $12,000 B. $16,000 C. $50,000 D. None of these E. $20,000

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