Colin and Reed Formed a Business Entity Several Years Ago

Essay

Colin and Reed formed a business entity several years ago. At that date, Colin's basis for his ownership interest was $40,000 and Reed's basis for his ownership interest was $50,000. Colin's profit and loss percentage is 40% and Reed's profit and loss percentage is 60%. During the intervening period, the entity has reported profits of $200,000. At the beginning of the current year, the entity had liabilities (all recourse) of $50,000. At the end of the current year, the liabilities (all recourse) had increased to $70,000. Determine Colin and Reed's basis for their ownership interest if the entity is: