Formation of a Partnership Compared to Formation of a Corporation. At the beginn
ID: 2426152 • Letter: F
Question
Formation of a Partnership Compared to Formation of a Corporation. At the beginning of the current year, Able and Baker formed the AB Partnership by transferring cash and property to the partnership in exchange for a partnership interest, with each having a 50% interest. Specifically, Able transferred property having a $50,000 FMV, a $30,000 adjusted basis, and subject to a $10,000 liability, which the partnership assume Baker contributed $40,000 cash to the partnership. The partnership also borrowed $28,000 from the bank to use in its operations. All liabilities are recourse for which the partners have an equal economic risk of loss. During the current year, the partnership earned $24,000 of net ordinary income and reinvested this amount in new property. What is the partnership's and each partner's gain or loss recognized on the formation of the partnership? What is each partner's basis in his or her partnership interest at the end of the current year? For the partnership, prepare a tax and book balance sheet at the end of the current year. Assume instead that Able and Baker formed a corporation rather than a partnership. What is the corporation's and each shareholder's gain or loss recognized on the formation of the corporation? What is each shareholder's basis in his or her stock at the end of the current year?Explanation / Answer
a ) It is called a General parnership .A general partnership involves two or more owners carrying out a business purpose. General partners share equal rights and responsibilities in connection with the management of the business. And profit or loss sharing will be equal or as per there mutual decisions.
b) Any gains or losses made by the company are taxed directly to the partners in proportion to their ownership interest in the company.
c) The corporations are required to file business tax returns, and owners of a corporation are required to report money received from the company on their individual or joint tax return.Sharing of Profit or loss will be decided by the share holders