Gabriella and Juanita form Luster Corporation. Gabriella transfers cash of $50,000 for 50 shares of stock,while Juanita transfers a secret process (basis of zero; fair market value of $50,000)for 50 shares of stock. Neither Gabriella nor Juanita will recognize gain on the transfer.

Question

Quizplus · Accepted Answer

Both Gabriella and Juanita are contributing assets of equal value to the corporation, so there is no recognition of gain. Gabriella's $50,000 cash and Juanita's $50,000 secret process are both valued at $50,000, and they each receive 50 shares of stock.

Gabriella and Juanita Form Luster Corporation