Zeppo and Harpo are equal owners of the Marx Corporation. During the current year, they agree to admit Groucho as a shareholder. Groucho will contribute $35,000 in cash and property worth $75,000 (adjusted basis of $55,000) for 40% of Marx Corporation's stock. How much gain will Groucho recognize from the transfer of the assets to the corporation?

Question

Quizplus · Accepted Answer

Groucho's contribution includes cash of $35,000 and property worth $75,000, with an adjusted basis of $55,000. Thus, the gain on the transfer of property is $75,000 - $55,000 = $20,000. Since Groucho will own 40% of the corporation's stock, he will recognize 40% of the $20,000 gain, or $8,000. Therefore, the correct answer is B) $20,000.

Zeppo and Harpo Are Equal Owners of the Marx Corporation