Don, a cash basis taxpayer, incorporates his sole proprietorship. He transfers the following items to newly...

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Don, a cash basis taxpayer, incorporates his sole proprietorship. He transfers the following items to newly created Orange Co

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Answer 1

Answer #1

Ans: (B) Don has a recognized gain of $5,000.

Explanation:

As per IRS, Under § 357(c), Don recognizes gain to the extent liabilities .

Total Assets of Don:

= $10,000(cash) + $120,000( building)

= $130000

Total Liabilities Of Don :

= $ 135,000. ( mortgage payable)

Recongnized Gain Of Don:

=$ 1,35,000 - $ 1,30,000

= $5000

Therefore (B) is the correct answer.

Orange Corporation's basis in the building is

= $125,000

[$120,000 (Don's basis) + $5,000 (gain recognized by Don)].

Hence, (a) is incorrect.

As we have ,computed it recongnizes $5000 gain therefore'both option (c) & ( d) are incorrect.

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Answer 2

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