Michael transfers $20,000 cash and land to XYZ, Inc. in exchange for all of its stock. The land has a $140,000 adjusted basis and a fair market value of $250,000 immediately before the exchange. XYZ, Inc assumes a $200,000 mortgage on the land for a valid business purpose. Now answer the following questions. 1. What, if anything, must Michael recognize on this exchange? 2. What is Michael’s basis in the stock?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Michael transfers $20,000 cash and land to XYZ, Inc. in exchange for all of its stock. The land has a $140,000 adjusted basis and a fair market value of $250,000 immediately before the exchange. XYZ, Inc assumes a $200,000 mortgage on the land for a valid business purpose. Now answer the following questions.

1. What, if anything, must Michael recognize on this exchange?

2. What is Michael’s basis in the stock? 

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