Jacob and Ashley form Junco Corporation with the following investments. $\begin{array}{lr}
&\text {From}&\text {From}\
&\text {Jacob}&\text {Ashley}\
\text { Cash } & \$ 200,000 \
\text { Equipment (basis of } \$ 400,000 \text {; fair market value } & 300,000 \
\text { of } \$ 300,000 \text { ) } & \
\text { Land (basis of } \$ 300,000 \text {; fair market value of } &&\$600,000 \
\$ 600,000) &
\end{array}$ Both Jacob and Ashley receive one-half of the Junco stock.In addition, Ashley receives cash of $100,000.One of the results of these transfers is that:

Question

Quizplus · Accepted Answer

According to the information provided, Jacob contributes land with a fair market value of $300,000 and a basis of $200,000. Ashley contributes cash of $100,000 and land with a fair market value of $300,000 and a basis of $0. The total contributions are $400,000 ($300,000 + $100,000).

Since Jacob and Ashley each receive one-half of the Junco stock, they will have equal ownership interest in Junco. Thus, their basis in the stock will also be equal. The basis in the stock is determined by the total contributions to Junco, which is $400,000. Therefore, Ashley's basis in the Junco stock is $200,000.

Option A is incorrect because it is not mentioned that Jacob recognized any loss. Option B is incorrect because Ashley's total contribution is $400,000 and hence she cannot have a recognized gain of $300,000. Option D is incorrect because Ashley's basis in Junco stock is determined by the total contributions to Junco, which is $400,000.

Jacob and Ashley Form Junco Corporation with the Following Investments