Shawn,a sole proprietor,is engaged in a service business and uses the cash basis of accounting.In the current year,Shawn incorporates his business by forming Aqua Corporation.In exchange for all of its stock,Aqua receives: assets (basis of $380,000 and fair market value of $1.8 million),trade accounts payable of $125,000,and loan due to a bank of $375,000.The proceeds from the bank loan were used by Shawn to provide operating funds for the business.Aqua Corporation assumes all of the liabilities transferred to it.

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The Answer of Shawn,a sole proprietor,is engaged in a service business and uses the cash basis of accounting.In the current year,Shawn incorporates his business by forming Aqua Corporation.In exchange for all of its stock,Aqua receives: assets (basis of $380,000 and fair market value of $1.8 million),trade accounts payable of $125,000,and loan due to a bank of $375,000.The proceeds from the bank loan were used by Shawn to provide operating funds for the business.Aqua Corporation assumes all of the liabilities transferred to it.

Shawn,a Sole Proprietor,is Engaged in a Service Business and Uses