Question

Wayne and Paul form ABC Corporation with the following investments. Wayne transfers machinery (basis of $40,000 and fair market value of $100,000), while Paul transfers land (basis of $20,000 and fair market value of $90,000) and services rendered (worth $10,000) in organizing the corporation. Each is issued 25 shares in ABC Corporation. With respect to the transfers:

A. Wayne has no recognized gain; Paul recognizes income/gain of $80,000.

B. Neither Wayne nor Paul has recognized gain or income on the transfers.

C. ABC Corporation has a basis of $30,000 in the land transferred by Paul.

D. Paul has a basis of $30,000 in the 25 shares he acquires in ABC Corporation.

E. None of the above.

Answer 1

Ans is D

Paul has a basis of $30,000 in the 25 shares he acquires in Swan Corporation

Reason

Wade has not recognised gain on transfer. Paul recognises income of $10000, representing stock received for services transferred.

Swan corporation has a basis of $40,000 in machinery and $20,000 in land.

Paul has basis of $30,000 in stock in S corporation.

$20000, basis of land.

$10000, income recognized from services rendered.

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