Pester co. was incorporated by the conversion of Peter's sole proprietorship, which sells computers. At the time of conversion, stocks with book value of $15,000 were transferred into the incorporated company; these had an open market value of $20,000, but a consideration of $12,000 was agreed for the purposes of the transfer.

Following the incorporation, Pester began offering computer servicing services, and the computers taken over were loaned to customers while their computers were retained for repairs/servicing.

1. What would be the value of the stock transferred for tax purposes?

A. $15,000

B. $12,000

C. $20,000

2. What would be the gain/loss recorded by Peter's SP following the transfer?

A. Taxable gains $5,000 B. Realized loss $5,000 C. Realizedloss$3,000

D. Taxable gains $8,000