Problem:

At the beginning of the current year, Bonnie and Clyde formed the BC partnership, with each having a 50% interest. Bonnie transferred property with a $50,000 FMV, a $30,000 adjusted basis and subject to a $10,000 liability assumed by BC. Clyde contributed $40,000 cash. BC also borrowed $28,000 from a bank. All liabilities are recourse for which the partners have an equal economic risk of loss. During the current year, BC earned $24,000 of ordinary income and reinvested this amount in new property.

Required:

Question 1: What is the partnership's and each partner's gain or loss recognized on the formation of the partnership?

Question 2: What is each partner's basis in his or her partnership interest at the end of the current year?

Note: Be sure to show how you arrived at your answer.