Rhonda owns 50% of the stock of Peach Corporation. She and the other 50% shareholder, Rachel, have
Question:
Rhonda owns 50% of the stock of Peach Corporation. She and the other 50% shareholder, Rachel, have decided that additional contributions of capital are needed if Peach is to remain successful in its competitive industry. The two shareholders have agreed that Rhonda will contribute assets having a value of $200,000 (adjusted basis of $15,000) in exchange for additional shares of stock. After the transaction, Rhonda will hold 75% of Peach Corporation and Rachel's interest will fall to 25%.
a. What gain is realized on the transaction? How much of the gain will be recognized?
b. Rhonda is not satisfied with the transaction as proposed. How will the consequences change if Rachel agrees to transfer $1,000 of cash in exchange for additional stock? In this case, Rhonda will own slightly less than 75% of Peach and Rachel's interest will be slightly more than 25%.
c. If Rhonda still is not satisfied with the result, what should be done to avoid any gain recognition?
CorporationA Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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South Western Federal Taxation 2018 Corporations Partnerships Estates And Trusts
ISBN: 1389
41st Edition
Authors: William H. Hoffman, William A. Raabe, James C. Young, Annette Nellen, David M. Maloney