Question

Marie and Ethan form Roundtree Corporation with the transfer of the following. Marie performs personal services for the corporation with a fair market value of $176,400 in exchange for 400 shares of stock. Ethan contributes an installment note receivable (basis $25,000; fair market value $30,000), land (basis $50,000; fair market value $170,000), and inventory (basis $404,480; fair market value $505,600) in exchange for 1,600 shares.

Determine Marie and Ethan's current income, gain, or loss and calculate the basis that each takes in the Roundtree stock.

If an amount is zero, enter "0".

Marie has income of $___ and $__ basis in her 400 shares of stock and Ethan has income
of $__ and $__ basis in his 1,600 shares of stock.

Answer 1

Solution:

Marie has income of $ 176,400 and $ 176,400 basis in her 400 shares of stock and Ethan has income
of $ 0 and $ 479,480 basis in his 1,600 shares of stock.

Notes:

1) Marie income is $ 176,400 because she performs personal service for corporation. So, Her basis is equal to that fair value of such personal service.

2) Ethan income is $ 0 but basis for shares will be taken from assets contributed.

Particular	Amount $
Note Receivable	$                       25,000
Land	$                       50,000
Inventory	$                    404,480
Total	$                    479,480