F and G formed a corporation on March 1 this year.F transferred equipment worth $40,000 (basis $15,000) in exchange for 40 shares of stock, and performed services worth $10,000 in exchange for 10 shares of stock.In exchange for 50 shares of stock, G contributed land worth $70,000 (basis $9,000) subject to a mortgage of $20,000, which the corporation assumed.What amount of gross income must G recognize due to the incorporation transaction?

Question

Quizplus · Accepted Answer

G will recognize gross income of $11,000. The gain on the land contributed is calculated as follows:
($70,000 FMV - $9,000 basis) - ($20,000 mortgage assumed) = $41,000 gain
40/100 x $41,000 gain = $16,400 taxable gain
However, since G only received 50 shares of stock (50/100), G will only recognize 50% of the taxable gain, which is $8,200. Additionally, G will not recognize any income for the mortgage assumed by the corporation. Therefore, G will recognize total gross income of $11,000 ($8,200 + $2,800 for the services performed).

F and G Formed a Corporation on March 1 This