|Spencer Software Company has assets of $850,000 and liabilities of $460,000.|
Prepare the owners” equity section of the company”s balance sheet under each of the following independent assumptions:
|1.||The business is organized as a sole proprietorship, owned by Johanna Spencer.|
The business is organized as a partnership, owned by Johanna Spencer and Mikki Yato. Spencerâs equity amounts to $240,000.
The business is a corporation with 27 stockholders, each of whom originally invested $10,000 in exchange for shares of the companyâs capital stock. The remainder of the stockholdersâ equity has resulted from profitable operation of the business.
Lonnie Davis has been a general partner in the HighlandPartnership for many years and is also a sole proprietor in aseparate business. To spend more time focusing on his soleproprietorship, he plans to leave Highland and will receive aliquidating distribution of $65,750 in cash and land with a fairmarket value of $113,500 (tax basis of $145,000). Immediatelybefore the distribution, Lonnieâs basis in his partnership interestis $415,000, which includes his $85,000 share of partnership debt.The Highland Partnership does not hold any hot assets.
a. What is the amount and character of any gain or loss toLonnie?
b.. What is Lonnieâs basis in the land?
c.What is the amount and character of Lonnieâs gain or loss ifhe holds the land for 13 months as investment property and thensells it for $120,000?
d.What is the amount and character of Lonnieâs gain or loss ifhe places the land into service in his sole proprietorship and thensells it 13 months later for $120,000?
1. Can shareholders of a C corporations deduct its lossesagainst corporation”s E&P passed to its shareholders asdividends (i.e. income of shareholders)?
2. When can a C (regular) corporation”s corporate veil bepierced resulting in its shareholders being personally liable forcorporationâs actions?
3. How is the income of the following business entitiestaxed?
â¢C (regular) corporation
â¢Limited liability corporation (LLC)
4. Kent and Craig, who want to start a horse-training business,spoke to an insurance agent about getting insurance to coverpotential liabilities, but were told that they could not getliability insurance because of the high risk nature their proposedbusiness. What business entities would you recommend to Kent andCraig? Why?
Please answer all the questions above.
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