Question

Jack and Dan agree to go into business together selling clothing. According to the agreement, Jack will contribute inventory valued at $91,200 in return for 80 percent of the stock in the corporation. Jack’s tax basis in the inventory is $50,160. Dan will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualified as organizational expenditures). The accounting services are valued at $22,800. (Negative amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.) (US tax laws)

Assume Dan received 25 percent of the stock in the corporation in return for his services. (the answer is not $22,800 - please answer both questions)

g. What amount of income gain or loss does Dan recognize on the formation of the corporation?

income, gain or loss recognized =

h. What is Dan’s tax basis in the stock he receives in return for his contribution of services to the corporation?

tax basis =

Answer 1

The information provided in the question are :

Jack contribute inventory =$91200

Jack gets 80% of stock in return

Jack's tax basis= $50160

Dan's accounting services = $22800

Dan gets 25%of stock in return

g) dan's income is $5700

h) dan's taxis basis is $17100