Question

1. 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 $144,000 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 $300,800; fair market value $376,000) 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 $ 144,000 and $ 144,000 basis in her 400 shares of stock and Ethan has income of $ 0 and $ 375,800 basis in his 1,600 shares of stock.

Notes:

1) Marie performed personal services to the organisation and such service fair market value is $ 144,000 and we consider that as income.Such Income is also basis for Marine for 400 shares of stock.

2) Ethan contributed the following assets and basis value of such asset will be basis for 1,600 shares of stock and ethan has no income.

Note Receivables	$          25,000
Land	$          50,000
Inventory	$        300,800
Total	$        375,800