Question
Ron and Hermione formed Wizard Corporation on January 2. Ron contributed cash of $188,000 in return for 50 percent of the corporations stock. Hermione contributed
Ron and Hermione formed Wizard Corporation on January 2. Ron contributed cash of $188,000 in return for 50 percent of the corporations stock. Hermione contributed a building and land with the following fair market values and adjusted bases in return for 50 percent of the corporations stock:
FMV | Tax-Adjusted Basis | ||||
Building | $ | 104,000 | $ | 26,000 | |
Land | 156,000 | 104,000 | |||
Total | $ | 260,000 | $ | 130,000 | |
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To equalize the exchange, Wizard Corporation paid Hermione $72,000 in addition to her stock.
a. What amount of gain or loss does Ron realize on the formation of the corporation? What amount, if any, does he recognize? (Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.)
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b. What is Rons tax basis in the stock he receives in return for his contribution of property to the corporation?
c. What amount of gain or loss does Hermione realize on the formation of the corporation? What amount, if any, does she recognize?
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