Ryan and Kristen form the Carolina Corporation with the following consideration:

		Consideration Transferred
		Basis to Transferor		Fair Market Value		Number of Shares Issued
From Ryan
	Cash	$820,000		$820,000
	Notes receivable	235,000		290,000		1,110
From Kristen
	Cash	$100,000		$100,000
	Patent	300,000		500,000
	Machinery	260,000		200,000		800

In the event the corporation is subject to the built-in loss adjustment, the alternative approach is not elected by the corporation and shareholder. Regarding these transactions, provide the following information:

If an amount is zero, enter "0".

a. Ryan's recognized gain or loss is $.

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Section 351 provides that gain or loss is not recognized upon the transfer of property to a corporation when certain conditions are met. This provision reflects the principle that gain should not be recognized when a taxpayer's investment has not substantively changed.

b. Ryan's basis in the Carolina Corporation stock is $.

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Correct

c. Carolina Corporation's basis in the notes receivable is $.

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Incorrect

d. Kristen's recognized gain or loss is $.

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Correct

e. Kristen's basis in the Carolina Corporation stock is $.

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Incorrect

f. Carolina Corporation's basis in the patent is $. Its basis in the machinery is $.

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Incorrect

g. Would your answers to the preceding questions change if Ryan received common stock and Kristen received preferred stock? No , because there is no requirement that the transferors receive the same type of stock.

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Correct