FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question 5
Forming a Corporation and Shareholder's Basis
Toby contributes $60,000 cash in exchange for stock in the corporation. Keith contributes land
worth $70,000 (basis of $55,000) in exchange for $10,000 cash and $60,000 worth of stock in the
corporation. After the transfer, Toby and Keith own 100% of the corporation.
a. How much gain or loss do Toby, Keith, and the corporation recognize on the transfer?
Remember, if the transferring investors own at least 80% of the stock in the corporation,
neither the investor nor the corporation recognizes gain or loss on the transfer.
b. What is Toby's basis in the stock?
c. What is Keith's basis in the stock?
d. What is the corporation's basis in the land?
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Transcribed Image Text:Question 5 Forming a Corporation and Shareholder's Basis Toby contributes $60,000 cash in exchange for stock in the corporation. Keith contributes land worth $70,000 (basis of $55,000) in exchange for $10,000 cash and $60,000 worth of stock in the corporation. After the transfer, Toby and Keith own 100% of the corporation. a. How much gain or loss do Toby, Keith, and the corporation recognize on the transfer? Remember, if the transferring investors own at least 80% of the stock in the corporation, neither the investor nor the corporation recognizes gain or loss on the transfer. b. What is Toby's basis in the stock? c. What is Keith's basis in the stock? d. What is the corporation's basis in the land?
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