Part 1:Lourdes incorporated her sole proprietorship by transferringinventory, equipment, and land to the corporation...Part...

70.2K

Verified Solution

Question

Accounting

Part 1:
Lourdes incorporated her sole proprietorship by transferringinventory, equipment, and land to the corporation in return for 100percent of the corporation’s stock. The property transferred to thecorporation had the following fair market value and adjustedbasis.
Property Transfer
FMV AdjustedBasis
Inventory $ 20,000 $ 10,000
Equipment $150,000 $100,000
Land $250,000 $300,000
Total $420,000 $410,000
The corporation also assumed a note payable of $120,000 attachedto the Equipment and land. The fair market value of thecorporation’s stock received in the exchange was $300,000.
What amount of gain or loss does Lourdes realize on thetransfer of the property to the corporation?
What amount of gain or loss does Lourdes recognize onthe transfer of the property to her corporation?
What is Lourdes’s basis in the stock she receives in hercorporation?
Would you advise Lourdes to transfer the equipment and land tothe corporation? What tax benefits might she and the corporationreceive if she kept the equipment and land and leased it to thecorporation?
Part 2:
Alan owns stock in two S corporations, Cyan and Verde. Heactively participates in the management of Cyan but is only apassive investor in Verde. Both Cyan and Verde anticipate a lossthis year. Alan’s basis in the stock of both corporations is $0. IfAlan plans on making a capital contribution to at least one of thecorporations this year, which firm should it be if his objective isto increase his chances of deducting the loss allocated to him fromthe entity? Why?

Property Transfer
	FMV	AdjustedBasis
Inventory	$ 20,000	$ 10,000
Equipment	$150,000	$100,000
Land	$250,000	$300,000
Total	$420,000	$410,000

Answer & Explanation Solved by verified expert

4.1 Ratings (554 Votes)

SolutionPart 1a What amount of gain orloss does Lourdes recognize on the transfer of the property to hercorporationCarla realizes a net gain of 10000on this transfer computed as followsFair marketvalue of stock received300000 Mortgageassumed by See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

In: AccountingPart 1:Lourdes incorporated her sole proprietorship by transferringinventory, equipment, and land to the corporation...Part 1:Lourdes incorporated her sole proprietorship by transferringinventory, equipment, and land to the corporation in return for 100percent of the corporation’s stock. The property transferred to thecorporation had the following fair market value and adjustedbasis.Property TransferFMVAdjustedBasisInventory$ 20,000$ 10,000Equipment$150,000$100,000Land$250,000$300,000Total$420,000$410,000The corporation also assumed a note payable of $120,000 attachedto the Equipment and land. The fair market value of thecorporation’s stock received in the exchange was $300,000.What amount of gain or loss does Lourdes realize on thetransfer of the property to the corporation?What amount of gain or loss does Lourdes recognize onthe transfer of the property to her corporation?What is Lourdes’s basis in the stock she receives in hercorporation?Would you advise Lourdes to transfer the equipment and land tothe corporation? What tax benefits might she and the corporationreceive if she kept the equipment and land and leased it to thecorporation?Part 2:Alan owns stock in two S corporations, Cyan and Verde. Heactively participates in the management of Cyan but is only apassive investor in Verde. Both Cyan and Verde anticipate a lossthis year. Alan’s basis in the stock of both corporations is $0. IfAlan plans on making a capital contribution to at least one of thecorporations this year, which firm should it be if his objective isto increase his chances of deducting the loss allocated to him fromthe entity? Why?