Question

Carla incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation’s stock. The property transferred to the corporation had the following fair market values and adjusted bases:

	FMV			Adjusted Basis
Inventory	$	34,500		$	17,000
Building		193,000			147,000
Land		321,750			329,000
Total	$	549,250		$	493,000

The corporation also assumed a mortgage of $135,750 attached to the building and land. The fair market value of the corporation’s stock received in the exchange was $413,500. (Negative amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)

a. What amount of gain or loss does Carla realize on the transfer of the property to the corporation?

b. What amount of gain or loss does Carla recognize on the transfer of the property to her corporation?

c. What is Carla’s basis in the stock she receives in her corporation?

      

Answer 1

a}

PARTICULARS	AMOUNT
FMV of stock	413500
Less: inventory(FMV)	34500
building(FMV)	193000
land(FMV)	321750
ADD: mortgage	135750
realised amount	0

b)

PARTICULARS	AMOUNT
FMV of stock	413500
Less: inventory (adjusted basis)	17000
building(adjusted basis)	147000
land(adjusted basis)	329000
Add: mortgage	135750
RECOGNISED AMOUNT	56250

C)

Basis of Carla

inventory	17000
building	147000
land	329000
mortgage	135750
amount	357250