Chapter 18 Homework

Solutions

36.

[LO 2] Ramon incorporated his sole proprietorship by transferring inventory, a building,

and land to the corporation in return for 100 percent of the corporations stock. The
property transferred to the corporation had the following fair market value and adjusted
basis.
Inventory
Building
Land
Total

FMV
10,000
50,000
100,000
$ 160,000
$

Adjusted Basis
4,000
30,000
50,000
$
84,000
$

The fair market value of the corporations stock received in the exchange equaled the fair
market value of the assets transferred to the corporation by Ramon.
a.

What amount of gain or loss does Ramon realize on the transfer of the property to
his corporation?
Ramon realizes a net gain of $76,000 on this transfer, computed as follows:
Fair market value of stock received
- Adjusted basis of the property transferred
Gain realized

b.

$160,000
84,000
$ 76,000

What amount of gain or loss does Ramon recognize on the transfer of the property to
his corporation?
Ramon does not recognize any gain or loss on the transfer because the requirements
of 351 are met and no boot is received in the exchange.

c.

What is Ramons basis in the stock he receives in his corporation?

$84,000.

37.

[LO 2] Carla incorporated her sole proprietorship by transferring inventory, a building, and
land to the corporation in return for 100 percent of the corporations stock. The property
transferred to the corporation had the following fair market value and adjusted basis.
Inventory
Building
Land
Total

FMV
$ 20,000
150,000
250,000
$ 420,000

Adjusted Basis
$ 10,000
100,000
300,000
$ 410,000

The corporation also assumed a mortgage of $120,000 attached to the building and land.
The fair market value of the corporations stock received in the exchange was $300,000.

a.

What amount of gain or loss does Carla realize on the transfer of the property to the
corporation?
Carla realizes a net gain of $10,000 on this transfer, computed as follows:
Fair market value of stock received
+ Mortgage assumed by corporation
Amount realized
- Adjusted basis of the property transferred
Gain realized

b.

$ 300,000
120,000
$ 420,000
410,000
$ 10,000

What amount of gain or loss does Carla recognize on the transfer of the property to
her corporation?
Carla does not recognize any gain or loss on the transfer because the requirements
of 351 are met and no boot is received in the exchange.

c.

What is Carlas basis in the stock she receives in his corporation?

$290,000. 410,000 120,000

38.

[LO 2] Ivan incorporated his sole proprietorship by transferring inventory, a building, and
land to the corporation in return for 100 percent of the corporations stock. The property
transferred to the corporation had the following fair market value and adjusted basis.
Inventory
Building
Land
Total

FMV
$ 10,000
50,000
60,000
$ 120,000

Adjusted Basis
$ 15,000
40,000
30,000
$ 85,000

The fair market value of the corporations stock received in the exchange equaled the fair
market value of the assets transferred to the corporation by Ivan. The transaction met the
requirements to be tax-deferred under 351.
a.

What amount of gain or loss does Ivan realize on the transfer of the property to his
corporation?
Ivan realizes a net gain of $35,000 on this transfer, computed as follows:
Fair market value of stock received
- Adjusted basis of the property transferred
Gain realized

b.

$120,000
85,000
$ 35,000

What amount of gain or loss does Ivan recognize on the transfer of the property to
her corporation?
Ivan does not recognize any gain or loss on the transfer because the requirements of
351 are met and no boot is received in the exchange.

c.

What is Ivans basis in the stock he receives in his corporation?

$85,000.
d.

What is the corporations adjusted basis in each of the assets received in the
exchange?
The corporation receives a carryover basis in the assets received from Ivan.
Inventory
Building
Land
Total

39.

$15,000
40,000
30,000
$85,000

[LO 2] Zhang incorporated her sole proprietorship by transferring inventory, a building,

and land to the corporation in return for 100 percent of the corporations stock. The
property transferred to the corporation had the following fair market value and adjusted
basis.
Inventory
Building
Land
Total

FMV
$ 20,000
150,000
230,000
$ 400,000

Adjusted Basis
$ 10,000
100,000
300,000
$ 410,000

The corporation also assumed a mortgage of $100,000 attached to the building and land.
The fair market value of the corporations stock received in the exchange was $300,000.
The transaction met the requirements to be tax-deferred under 351.
a.

What amount of gain or loss does Zhang realize on the transfer of the property to her
corporation?
Zhang realizes a net loss of $10,000 on this transfer, computed as follows:
Fair market value of stock received
Plus: Mortgage assumed by corporation
Amount realized
Less: Adjusted basis of the property transferred
Loss realized

b.

$ 300,000
+ 100,000
$400,000
- 410,000
$ (10,000)

What amount of gain or loss does Zhang recognize on the transfer of the property to
her corporation?
Zhang does not recognize any loss on the transfer because the requirements of 351
are met.

c.

What is Zhangs tax basis in the stock she receives in the exchange?
$310,000. 410,000 100,000.