Question

grace and Julie form wish land corp and in exchange for the transfer of their property. Wishland issues voting common stock with fair market value $ 240,0000. For their stock each transfer property to wishland as follows :

	transfer property	adjusted basis	fair market value	% of corp. stock acquired
grace	building	80,000	164000	60%
julie	land	10,000	96000	40%

Grace building is subject to a $ 20,000 mortgage assumed by wishland.

Does grace recognize any gain, in the transaction, if yes, how, much?

- Yes, $20,000

- Yes, $104,000

- No, 0

- Yes, $ 84,000

- none of these choices are correct.

With explanation, please.

Answer 1

Grace gets voting common stock with fair market value of $ 144,000 ($ 240,000 * 60%) from Wishland

The building contributed by Grace has a fair market value of $ 164,000 but is also subject to a $ 20,000 mortgage which has been assumed by wishland. Hence, the fair market value of the Grace's building when reduced by the amount of mortgage $ 20,000 comes to $ 144,000 (164000 - 20000)

Hence, Grace gets voting common stock equivalent to the fair market value of her building i.e. $ 144000. As such, Grace did not make any profit or loss in this transaction.

Therefore the answer is No, 0

Note : There is a mistake in the question. the amount is mentioned as $ 240,0000 whereas it should be $ 240,000.