B transferred depreciable equipment worth $12,000 (basis $9,000) to his wholly owned corporation this year in exchange for stock worth $7,000 and cash of $5,000.B's gain or loss on the transaction and his basis for the stock received is

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Quizplus · Accepted Answer

The gain is calculated as the difference between the fair market value of what B received ($7,000 in stock + $5,000 in cash = $12,000) and the basis of the equipment ($9,000), which equals a $3,000 gain. B's basis in the stock received is the basis of the equipment transferred ($9,000) plus the recognized gain ($3,000), but since the cash received does not affect the basis of the stock, the correct basis for the stock is actually the initial basis of the equipment transferred, making the correct answer $7,000. Thus, the explanation provided here corrects the calculation mistake in determining the basis of the stock received.

B Transferred Depreciable Equipment Worth $12,000 (Basis $9,000) to His