Jacob and Ashley form Junco Corporation with the following investments: Jacob and Ashley each receive one-half of the Junco stock.In addition,Ashley receives cash of $100,000.One of the results of these transfers is:

Question

Jacob and Ashley form Junco Corporation with the following investments:  Jacob and Ashley each receive one-half of the Junco stock.In addition,Ashley receives cash of $100,000.One of the results of these transfers is:

Quizplus · Accepted Answer

The transfers made by Jacob and Ashley can be viewed as contributions to Junco Corporation. Jacob contributes the land with a fair market value (FMV) of $300,000 and a basis of $500,000, resulting in a recognized loss of $200,000 ($500,000 - $300,000). Ashley contributes cash of $100,000 and receives one-half of the Junco stock, which has a total FMV of $600,000 ($300,000 + $300,000). Therefore, her basis in the Junco stock is $500,000 ($100,000 + $300,000 + $100,000) and her recognized gain is $300,000 ($500,000 - $200,000). However, the question only asks for one of the results of these transfers, which is that Junco Corporation has a basis in the land of $400,000 ($500,000 - $100,000).

Jacob and Ashley Form Junco Corporation with the Following Investments