Question

Hunter and Warren form Tan Corporation. Hunter transfers equipment (basis of $210,000 and fair market value...


Hunter and Warren form Tan Corporation. Hunter transfers equipment (basis of $210,000 and fair market value of $180,000) while Warren transfers land (basis of $15,000 and fair market value of $150,000) and $30,000 of cash. Each receives 50% of Tan’s stock.

Required: 1. Determine the amount of gain or loss Hunter recognizes on the formation of Tan Corporation. 2. Determine Hunter’s basis in his shares of Tan stock. Show your work. 3. Determine Tan’s basis in the equipment. Show your work.   

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Homework Answers

Answer #1

1. Hunter has no loss or gain to be recognized on the formation of Tan Corporation.

Explanation:

In the books of Hunter before the formation of Tan Corporation loss of $30,000 is to be recognized. But in Tan Corporation no loss or gain is to be recognized as the same amount is contributed by both Hunter and Warren i.e, $1,80,000

2. Hunter basis in his shares of Tan stock=50% i.e, fair market value of equipment $1,80,000

Explanation:

Total capital employed Amount  ($)

Hunter contribution (Hunter basis)    1,80,000

Warren contribution 1,80,000

(1,50,000+30,000)

Total 3,60,000

3. Tan's basis is $3,60,000 as per above (2) computation.

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