Ted decides to incorporate his medical practice. He uses the cash method of accounting. On the date of incorporation, the practice reports the following balance sheet:

All the current liabilities would be deductible by Ted if he paid them. Ted transfers all the assets and liabilities to a professional corporation in exchange for all of its stock.
a. What are the amount and character of Ted€™s recognized gain or loss?
b. What is Ted€™s basis in the stock?
c. What is the corporation€™s basis in the property?
d. Who recognizes income on the receivables upon their collection? Can the corporation obtain a deduction for the liabilities when it pays them?

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Basis FMV Assets: Cash S 5,000 5,000 Accounts receivable 65,000 Equipment (net of S15,000 depreciation) Total $40,000 S110,000 Liabilities and Owner's Equity: Current liabilities S 35,000 Note payable on equipment 15,000 15,000 Owner's equity 25,000 60,000 $40000 $110000 Total