Question

Carl transfers land to Cardinal Corporation for 90% of the stock in Cardinal Corporation worth $60,000...

Carl transfers land to Cardinal Corporation for 90% of the stock in Cardinal Corporation worth $60,000 and the assumption by Cardinal of a mortgage on the land in the amount of $100,000. The land, which has a basis to Carl of $70,000, is worth $160,000.   

Required: 1. Determine the amount of gain or loss, if any, that Carl must recognize. 2. Determine Carl’s basis in his shares of Cardinal Corporation stock. Show your work. 3. Determine Cardinal’s basis in the land. Show your work.

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Summary of details mentioned in question-

Carl Transfers the land to Cardinal and in return Cardinal transfer the 90% of stock od $60,000.

1. Value of Land as per books is $70,000

Market value od land as per Carl is $160,000

Value of stock of cardinal is $60,000

Loss as per Carl = Book Value of Land - Value of Stock of Cardinal

=$70000-$60,000=$10,000

2.Carl’s basis in his shares of Cardinal Corporation stock is $60,000 - The value of stock which is transfered by Cardinal.

3.Cardinal’s basis in the land is $ 100,0000 - The Amount which is the assumed by Cardinal of a mortgage on the land.

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