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Emma, a sole proprietor, was engaged in a service business and reported her income on a cash basis. Later, she incorporates her business and transfers
Emma, a sole proprietor, was engaged in a service business and reported her income on a cash basis. Later, she incorporates her business and transfers the assets of the business to the corporation in return for all the stock in the corporation plus the corporation's assumption of the liabilities of her proprietorship. All the receivables and the unpaid trade payables are transferred to the newly formed corporation. |
The assets of the proprietorship had a basis of $109,300 and fair market value of $270,000. The trade accounts payable totaled $18,000. There was a note payable to the bank in the amount of $93,500 that the corporation assumes. The note was issued for the purchase of computers and other business equipment. |
Which of the following statement is true?
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