Cynthia, a sole proprietor, was engaged in a service business and reported her income on the cash basis. In February of the current year, she incorporates her business as Dove Corporation and transfers the assets of the business to the corporation in return for all of the stock in addition to the corporations assumption of her proprietorships liabilities. All of the receivables and the unpaid trade payables are transferred to the newly formed corporation. The balance sheet of the Decision Making corporation immediately after its formation is as follows:

Discuss the tax consequences of the incorporation of the business to Cynthia and to Dove Corporation.

Basis to Dove Fair Market Value 80,000 Cash Accounts receivable Equipment (cost $180,000 depreciation 80000 240,000 previously claimed $60,000 120,000 160,000 Land $400,000 $1,200,000 Liabilities and Stockholders' Equity Liabilities: Accounts payable trade Notes payable bank 120,000 360,000 Stockholders' equity: 720,000 $1,200,000 Common stock Total