Donkey invests $60,000 and Dragon invests $40,000 in an entity. The entity gener

Question

Donkey invests $60,000 and Dragon invests $40,000 in an entity. The entity generates profits of $30,000 during the first year. At the end of the first year, the entity has non-recourse liabilities of $15,000 and recourse of $12,000. Assume any sharing of profits and losses is in accordance with the original contribution ratio. Calculate Donkey's regular basis (i.e. basis for stock, Outside Basis) for his ownership interest if the entity is: a) An S corporation b) A C corporation c) A partnership d) An LLC

Explanation / Answer

a) Sharing of profit and loss as an S corporation:

ratio:

Donkey: 6/10

Dragon: 4/10

Donkey: 30000*6/10= $18000

Dragon: 30000*4/10= $12000

b) as C corporation:

30000-15000= $15000

Donkey: 15000*6/10 = 9000

Dragon: 15000*4/10 = $6000

c)as apartnership firm:

profit: 30000-27000 = $3000

Donkey:3000*6/10 = 1800

Dragon: 3000*4/10 = 1200

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