In questions 1-5, calculate gain (loss) that will be recognized by the shareholders as a whole and the shareholders' collective basis in the stock after the transfer using the information below. In questions 6-10, calculate gain (loss) that will be recognized by the shareholders as a whole and the corporation's basis in the property after the transfer using the information below. Enter the appropriate amounts in the designated cells below. Indicate losses by using a leading minus (-) sign. If no entry is necessary, enter a zero (0). Corporate Formation Gain (Loss) Basis 1. Violet incorporated her sole proprietorship in 2020. She transferred equipment with a $125,000 basis and $300,000 FMV, and the corporation assumed an $80,000 loan held against the equipment. The loan was taken out 1 day before the transfer, 3 years after the equipment was purchased, because Violet knew it would provide a tax benefit. 2. Christopher transferred a building worth $310,000 and a basis to him of $250,000 to Heat, Inc. Heat also assumed a $100,000 mortgage related to the building. In exchange, Christopher received 85% of the company's stock worth $310,000 and $20,000 cash. 3. Wilbur transferred $90,000 of inventory for 100% of the shares of his newly formed corporation. Wilbur's basis in the property was $70,000. 4. Maria and Kim started Grand Slam, Inc., in 2020. Kim transferred a building with a basis of $250,000 and a FMV of $330,000 for 75% of the stock. Maria agreed to perform advertising services in exchange for her stock. Ignore Maria's compensation income when computing the gain (loss) column. 5. Emmitt and Troy formed a corporation to which Emmitt transferred a patent right that had a FMV of $25,000 and a zero adjusted basis. Troy transferred equipment with a $100,000 FMV and an adjusted basis to him of $75,000. In return, Emmitt received 25% and Troy 75% of all of the corporation's outstanding stock. 6. Bethany formed Bethco, a C corporation, by transferring equipment with a basis of $275,000 and subject to $125,000 of liabilities for 100% of Bethco's stock. 7. Orel transferred a building worth $540,000 and a basis to him of $400,000 to Dodge Corp. In exchange, he received 80% of the company's stock and $100,000 cash. 8. Sue and Cheryl started Sparks, Inc., in 2020, each receiving 50% of the corporation's stock. Sue transferred equipment with a basis of $130,000 and a FMV of $180,000. Cheryl agreed to be the CEO of the company in exchange for her stock. Ignore Cheryl's compensation income when computing the gain (loss) column. 9. Mark transferred $35,000 of equipment for 100% of the shares of his newly formed corporation. Mark's basis in the equipment was $45,000. 10. George received 75% of a corporation's shares in return for $300,000 of inventory. The inventory had cost George $225,000 to produce.

Answer rating: 100% (QA)

1Gain recognized is 80000 The taken of property subject to a liability is treated as an assumption of the liability The purpose of avoiding the Federa... View the full answer