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 corporation immediately after its formation is as follows:

Assets

Basis to Dove Fair Market Value

Cash $80,000 $80,000

Accounts receivable 0 240,000

Equipment (cost $180,000; depreciation previously

previously claimed as 60,000) 120,000 320000

Building (straight-line depreciation) 160,000 400,000

Land 40,000 160,000

Total $400,000 $1,200,000

Liabilities and Stockholders Equity

Liabilities:

Fair Market Value

Accounts payabletrade $120,000

Notes payablebank 360,000

Stockholders equity:

Common stock 720,000

Total $1,200,000

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