Question
Scott incorporates his sole proprietorship as Superior Corporation and transfers its assets to Superior in exchange for all 100 shares of Superior stock and four
Scott incorporates his sole proprietorship as Superior Corporation and transfers its assets to Superior in exchange for all 100 shares of Superior stock and four $7,500 interest-bearing notes. The stock has a $130,000 FMV. The notes mature consecutively on the first four anniversaries of the incorporation date. The assets transferred are as follows:
Assets |
| Adjusted Basis | FMV |
Cash |
| 14400 | 14400 |
Equipment | 135000 |
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Minus: Accumulated Depreciation | (65000) | 70000 | 60800 |
Building | 85000 |
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Minus: Accumulated Depreciation | (50000) | 35000 | 51200 |
Land |
| 25600 | 33600 |
Total |
| 45000 | 160000 |
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Requirement a. What are the amounts and character of tScott's recognized gains or losses?Complete the table to determine the amount and character of Scott's recognized gain or loss for each asset type. If an asset does not have a gain or loss, select "N/A" for the character type.
| Cash | Equipment | Building | Land |
Assets FMV |
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Consideration Received in exchange for asset |
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Stock |
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Notes |
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Total Proceeds |
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Minus: Adjusted Basis |
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Realized gain (loss) |
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Boot Received |
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Recognized gain (loss) |
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Character of gain (loss) |
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Requirement b. What is Scott's basis in the Superior stock and notes? Begin by determining the adjusted basis of the stock.
Adjusted basis of Property transferred to the corporation |
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Plus | Gain recognized by transferor |
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Minus | FMV of Boot Received
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Adjusted basis of stock |
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Requirement c. What is Superior's basis in the property received from Scott?
| Cash | Equipment | Building | Land |
Transferors adjusted basis in property transferred to the corporation |
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Pus: |
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Minus: |
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Transferee corporations basis in property |
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