Carol and Sugar form a corporation. Carol transfers property valued at $550,000 (basis of $400,000) to the corporation in exchange for 50 percent of the corporate stock valued at $500,000. Sugar transfers property valued at $700,000 (basis of $400,000) and a $300,000 mortgage that the corporation assumes for the other 50 percent of the stock. In addition Sugar transfers $100,000 cash to the corporation and the corporation then transfers $50,000 cash to Carol along with the corporate stock. What are Carol and Sugar's realized and recognized gains or losses and their bases in the stock received. What is the corporation's basis in the assets received?

Question

Quizplus · Accepted Answer

The Answer is Total value of stock = $550,000 + $700,000 - $300,000 + $100,000 - $50,000 = $1,000,000

\begin{array}{lll} ext { Carol }&\$ 500,000 ext { Stock value } & ext { Sugar } & \$ 500,000 ext { Stock value } \&+50,000 ext { Cash } & & +300,000 ext { Mtge assumed } \& \$ 550.000 ext { Amount realized } & & -100.000 ext { Cash }\&-400,000 ext { Basis }&&\$ 700,000 ext { Amount realized }\&\$ 150,000 ext { Gain realized }&&-400,000 ext { Basis }\&&&\$ 300,000 ext { Gain realized }\&\$ 50,000 ext { Gain recognized (cash) }\&&& ext { No gain recognized }\&\$ 400,000 ext { Bldg. basis }\&+50,000 ext { Gain } && \$ 500,000 ext { Basis (equip. }+ ext { cash) } \&-50,000 ext { Boot } && -300,000 ext { Liability assumed }\&\$ 400,000 ext { Stock basis }&&\$ 200,000 ext { Stock basis }\&(\$ 50,000 ext { basis in cash) }\\end{array}

Corporation's basis in building = $400,000 carryover basis + $50,000 gain recognized = $450,000; equipment basis = $400,000 carryover basis; $50,000 is basis in cash retained

Carol and Sugar Form a Corporation