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Paul, Lisa, and Grant form Red Corporation. Paul contributes land (a capital asset) having a $10,000 adjusted basis and a $14,000 fair market value
Paul, Lisa, and Grant form Red Corporation. Paul contributes land (a capital asset) having a $10,000 adjusted basis and a $14,000 fair market value (FMV) to Red in exchange for Red eighteen-year notes having a $14,000 face value. Lisa contributes equipment (Sec. 1231 property) having a $20,000 adjusted basis and a $27,000 FMV for 25 shares of Red stock. She previously claimed $7,000 of depreciation on the equipment. Grant contributes $29,000 cash for 25 shares of Red stock. Read the requirements. Requirement a. What are the amount and character of Paul's, Lisa's, and Grant's recognized gains or losses? (Complete all input fields. If the is no gain or loss enter a 0 in the amount column and select "No gain or loss" in the Character column.) Amount of Gain or Loss Character of Gain or Loss Paul Lisa Grant Requirement b. What basis do Paul, Lisa, and Grant take in the stock or notes they receive? Enter the basis amount, then select whether this amount is for notes or stock received. Basis Stock or Notes received Paul Lisa Grant Requirement c. What basis does Red take in the land and equipment? What happens to the $7,000 of depreciation recapture potential on the equipment? Requirement c. What basis does Red take in the land and equipment? What happens to the $7,000 of depreciation recapture potential on the equipment? Red Corporation's basis in the land is Red Corporation's basis in the equipment is What happens to the $7,000 of depreciation recapture potential on the equipment? OA. The $7,000 recapture potential is not important after the transfer because Lisa does not recognize a gain on the asset transfer. B. The $7,000 recapture potential is inherited by Red because Lisa does not recognize a gain on the asset transfer. OC. The $7,000 recapture potential is inherited by Red because Lisa recognizes a gain on the asset transfer. OD. The $7,000 recapture potential is a deferred gain to Lisa because Red assumed the asset transfer.
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