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A shareholder transfers machinery (basis $80,000 and fair market value $70,000) and cash of $20,000 in...

A shareholder transfers machinery (basis $80,000 and fair market value $70,000) and cash of $20,000 in exchange for 85% of a corporation’s stock (worth $45,000) and property (basis $25,000 and fair market value $60,000). What is the shareholder’s basis after the exchange?

A. $55,000

B. $100,000

C. $85,000

D. $40,000

Business   Accounting   
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Answer #1
shareholders basis after exchange=basis of exchanged property+realized gain/(realized loss)
Realized gain/loss
FMV of stock received    60,000.00
minus:adjusted basis of property transferred - 80,000.00
minus:cash - 20,000.00
- 40,000.00
adjusted basis of property transferred    80,000.00
Less:realized loss - 40,000.00
shareholders basis after exchange    40,000.00
option D is correct
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