Rick transferred the following assets and liabilities to Warbler Corporation. $$\begin{array} { l r r }
& & \text { Fair Market } \
& \text { Adjusted Basis } & \text { Value } \
\text { Building } & \$ 210,000 & \$ 225,000 \
\text { Equipment } & 45,000 & 75,000 \
\text { Trucks } & 15,000 & 30,000 \
\text { Mortgage (held for four years) on building } & 30,000 & 30,000
\end{array}$$ ? In return, Rick received $75,000 in cash plus 90% of Warbler Corporation's only class of stock outstanding (fair market value of $225,000).
A)Rick has a recognized gain of $60,000.
B)Rick has a recognized gain of $75,000.
C)Rick's basis in the stock of Warbler Corporation is $270,000.
D)Warbler Corporation has the same basis in the assets received as Rick does in the stock.
E)None of the above.

Question

Rick transferred the following assets and liabilities to Warbler Corporation. $$\begin{array} { l r r } 
& & \text { Fair Market } \
& \text { Adjusted Basis } & \text { Value } \
\text { Building } & \$ 210,000 & \$ 225,000 \
\text { Equipment } & 45,000 & 75,000 \
\text { Trucks } & 15,000 & 30,000 \
\text { Mortgage (held for four years) on building } & 30,000 & 30,000
\end{array}$$ ? In return, Rick received $75,000 in cash plus 90% of Warbler Corporation's only class of stock outstanding (fair market value of $225,000).
A)Rick has a recognized gain of $60,000.
B)Rick has a recognized gain of $75,000.
C)Rick's basis in the stock of Warbler Corporation is $270,000.
D)Warbler Corporation has the same basis in the assets received as Rick does in the stock.
E)None of the above.

Quizplus · Accepted Answer

Rick's recognized gain is calculated as the lesser of the realized gain or the boot received. The realized gain is the difference between the total fair market value of the assets transferred ($330,000) and their adjusted basis ($270,000), which is $60,000. The boot received is $75,000 in cash. Therefore, the recognized gain is $60,000.

Rick Transferred the Following Assets and Liabilities to Warbler Corporation