Prisha, Juan, Hank, and Erica decide to pool the resources from their respective sole proprietorships and form a PJHE, Inc. These four individuals contribute the following items to form this corporation:

Asset Adj.                                 Basis Fair            Mkt Value            Shares of Stock

Prisha Cash                                 50,000                 50,000                 1,000 shares

Equipment                                  10,000                 50,000

Juan Building/land                     80,000               250,000                 1,500 shares

Mortgage*                               (100,000)             (100,000)

Hank Computers                      130,000              100,000                 1,000 shares

Erica Office furnishings             40,000              150,000**             1,000 shares

*The corporation assumed the mortgage associated with Juan’s building.

**Erica received $50,000 of cash in addition to the 1,000 shares of stock.

Required:

Prisha:

a. Does Prisha recognize gain, loss or income from this transaction? If so, what is the amount and character of this gain, income or loss?

b. What is Prisha’s basis in ABC stock?

c. What is ABC’s basis in the equipment?

Juan:

a. Does Juan recognize gain, loss or income from this transaction? If so, what is the amount and character of this gain, income or loss?

b. What is Juan’s basis in ABC stock?

c. What is ABC’s basis in the land and building?

Hank:

a. Does Hank recognize gain, loss or income from this transaction? If so, what is the amount and character of this gain, income or loss?

b. What is Hank’s basis in ABC stock?

c. What is ABC’s basis in the computers?

Erica:

a. Does Erica recognize gain, loss or income from this transaction? If so, what is the amount and character of this gain, income or loss?

b. What is Erica’s basis in ABC stock?

c. What is ABC’s basis in the office furnishings?

Answer rating: 100% (QA)

Prisha 1 Yes Prishna recognizes income here and the nature of the income is ordinary income 2 Prishas basis in the ABC Stock is 60000 3 ABCs basis in the equipment is 10000 Juan 1 Yes Juan recognizes ... View the full answer