1 TUVILI UJU ILU 8-1, LO 8-2, LU 8-3, LO 8-4, LO 8-5) Several years ago, your client, Brooks Robertson, started an office cleaning service. His business was very successful, owing much to his legacy as the greatest defensive third baseman in major league history and his nickname, "The Human Vacuum Cleaner." Brooks operated his business as a sole proprietorship and used the cash method of accounting. Brooks was advised by his attorney that it is too risky to operate his business as a sole proprietorship and that he should incorporate to limit his liability. Brooks has come to you for advice on the tax implications of incorporation. His balance sheet is presented below. Under the terms of the incorporation, Brooks would transfer the assets to the corporation in return for 100 percent of the company's common stock. The corporation would also assume the company's liabilities (payables and mortgage). Balance Sheet Adjusted Basis FMV Assets Accounts receivable cleaning equipment (net) Building Land Total assets Liabilities Accounts payable Salaries payable Mortgage on Land and building Total liabilities 0 25,000 50,000 25,000 $100,000 $ 5,000 20,000 75,000 50,000 $150,000 $ 0 0 35,000 $ 35,000 $ 10,000 5,000 35,000 $ 50,000 Required: e red asset to the corporation? b. How much, if any, gain or loss (on a per-asset basis) does Brooks recognize? c. How much gain or loss, if any, must the corporation recognize on the receipt of the assets of the sole proprietorship in exchange for the corporation's stock? d. What tax basis does Brooks have in the corporation's stock? e. What is the corporation's tax basis in each asset it receives from Brooks? f. How much, if any, gain or loss (on a per-asset basis) will Brooks recognize if he had taken back a 10-year note worth $25,000 plus stock worth $75,000 plus the liability assumption? g. Will Brooks be able to transfer the accounts receivable to the corporation and have the corporation recognize the income when the receivable is collected? h. Brooks was depreciating the equipment (200 percent declining balance) and building (straight-line) using MACRS when it was held inside the proprietorship. How will the corporation depreciate the equipment and building? Assume Brooks owned the equipment for four years (seven-year property) and the building for six years. 1-1. In consideration of whether or not the corporation can deduct liabilities when paid, will it matter which accounting method is used? 1-2. Which accounting method should the corporation use? Complete this question by entering your answers in the tabs below. Req A Reg B Reg C to D Reg E Req F Req G ReqH Reg 11 Req 12 How much, if any, gain or loss (on a per asset basis) will Brooks recognize if he had taken back a 10-year note worth $25,000 plus stock worth $75,000 plus the liability assumption? (Negative amount should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable. Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.) Show less Recognized gain/loss Accounts receivable Equipment Building Land Total Tu l oyme on the receipt of the assets of the sole proprietorship in exchange for the corporation's stock? d. What tax basis does Brooks have in the corporation's stock? e. What is the corporation's tax basis in each asset it receives from Brooks? f. How much, if any, gain or loss (on a per-asset basis) will Brooks recognize if he had taken back a 10-year note worth $25,000 plus stock worth $75,000 plus the liability assumption? g. Will Brooks be able to transfer the accounts receivable to the corporation and have the corporation recognize the income when the receivable is collected? h. Brooks was depreciating the equipment (200 percent declining balance) and building (straight-line) using MACRS when it was held inside the proprietorship. How will the corporation depreciate the equipment and building? Assume Brooks owned the equipment for four years (seven-year property) and the building for six years. 1-1. In consideration of whether or not the corporation can deduct liabilities when paid, will it matter which accounting method is used? i-2. Which accounting method should the corporation use? Complete this question by entering your answers in the tabs below. Reg A Req B Reg C to D Reg E ReqF Reg G ReqH Req 11 Req 12 Brooks was depreciating the equipment (200 percent declining balance) and building (straight-line) using MACRS when it was held inside the proprietorship. How will the corporation depreciate the equipment and building? Assume Brooks owned the equipment for four years (seven-year property) and the building for six years. Treat the assets as new assets and depreciate the assets using MACRS. Use the same depreciation schedule as Brooks was using prior to the transfer.