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Phillip incorporates his sole proprietorship, transferring it to newly formed black corporation. The assets transferred have...

Phillip incorporates his sole proprietorship, transferring it to newly formed black corporation. The assets transferred have an adjusted basis of $240000 and fair market value of $400000. Also transferred was $100000 in liabilities, $10000 of which was personal, the balance of $90000 being business related. In return for these transfers, Phillip receives all of the stock in Black corporation. Which of the following statements is correct?

What will be Phillip basis in the stock received

a. $340000

b. $240000

c. $250000

d. $330000

e. some other amount_______________

Business   Accounting   
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Answer #1

Stock value is calculated by the difference between assets and liabilities transferred.

The value of the asset which should be taken into consideration for calculating Philip's stock is $240000; Since the value of the asset calculated on adjusted basis is the amount of investment made by Philip's in black corporation ..

Hence Philips stock would be $240000 - $90000 = $150000

The liabilities worth $10000 are not taken into consideration since they are philips personal liabilities.

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