Question
Jack, Mark, and Bruce form Knights Consulting Corporation (Knights) with the following consideration: Adjusted Fair Market Basis Value From Jack Cash $80,000 $80,000 Inventory 800,000
Jack, Mark, and Bruce form Knights Consulting Corporation (Knights) with the following consideration:
|
| Adjusted | Fair Market |
|
| Basis | Value |
| From Jack |
|
|
| Cash | $80,000 | $80,000 |
| Inventory | 800,000 | 880,000 |
|
|
|
|
| From Mark |
|
|
| Land and building | 400,000 | 520,000 |
|
|
|
|
| From Bruce |
|
|
| Legal and management services | 0 | 160,000 |
Knights issues 2,000 shares of stock as follows: 1,200 to Jack, 600 to Mark, and 200 to Bruce. In addition, Mark receives $40,000 in cash from Knights. Each share of stock is worth $800 per share.
| a. | Do Jack, Mark and Bruce each recognize gain or loss (or income)? If yes, how much do each recognize, if any? |
|
| |
| b. | What tax basis do Jack, Mark and Bruce each have in their Knights stock received? |
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Auditing A Practical Approach
Authors: Robyn Moroney, Fiona Campbell, Jane Hamilton, Valerie Warren
3rd Canadian edition
1-119-40285-5, 111940276X, 978-1119566007
