the following question is to be answered with accounting knowledge, thank you.
Bella and Gigi, daughters of your long-time clients, decide to establish a corporation to sell commercial real estate. Both ladies have been buying real estate over the course of their modeling careers. Bella would like to contribute to this new corporation two parcels, one with a basis of $20,000, fair market value of $100,000 and one with a basis of $160,000, fair market value of $100,000, in exchange for 60% of the new corporation's stock worth $180,000 and $20,000 cash. She owns both parcels free and clear. Gigi would like to contribute a parcel with a basis of $80,000, fair market value of $180,000, in exchange for 40% of the new corporation's stock worth $120,000. The parcel is subject to a mortgage of $60,000. a) What tax consequence to Bella, Gigi, and the corporation? Please analyze (show all calculations) as follows (ignore long-term versus short-term & assuming all capital gain/loss): 1) Realized Gain 2) Recognized Gain by applying IRC Sec. 351(a) and 357(c) as applicable 3) IRC Sec. 358 stock basis to shareholder 4) IRC Sec. 362 property basis to new corporation 5) If the shareholder sells all the stocks subsequently, assuming fair market value remain the same as at the time of contribution, what gain, or loss will be recognized to the shareholders? 6) If the corporation sells the parcels subsequently, assuming fair market value remain the same as at the time of contribution, what gain, or loss will be recognized to the corporation? b) What tax consequence to Gigi and the corporation if her parcel is subject to a mortgage of $120,000? (Hint: Beware that because of a bigger mortgage, Gigi's net contribution will change, Bella's and Gigi's ownership percentages will change (no longer 60%/40%) and ergo, Gigi will be exchanging for lesser shares and a lesser percentage.) Bella and Gigi, daughters of your long-time clients, decide to establish a corporation to sell commercial real estate. Both ladies have been buying real estate over the course of their modeling careers. Bella would like to contribute to this new corporation two parcels, one with a basis of $20,000, fair market value of $100,000 and one with a basis of $160,000, fair market value of $100,000, in exchange for 60% of the new corporation's stock worth $180,000 and $20,000 cash. She owns both parcels free and clear. Gigi would like to contribute a parcel with a basis of $80,000, fair market value of $180,000, in exchange for 40% of the new corporation's stock worth $120,000. The parcel is subject to a mortgage of $60,000. a) What tax consequence to Bella, Gigi, and the corporation? Please analyze (show all calculations) as follows (ignore long-term versus short-term & assuming all capital gain/loss): 1) Realized Gain 2) Recognized Gain by applying IRC Sec. 351(a) and 357(c) as applicable 3) IRC Sec. 358 stock basis to shareholder 4) IRC Sec. 362 property basis to new corporation 5) If the shareholder sells all the stocks subsequently, assuming fair market value remain the same as at the time of contribution, what gain, or loss will be recognized to the shareholders? 6) If the corporation sells the parcels subsequently, assuming fair market value remain the same as at the time of contribution, what gain, or loss will be recognized to the corporation? b) What tax consequence to Gigi and the corporation if her parcel is subject to a mortgage of $120,000? (Hint: Beware that because of a bigger mortgage, Gigi's net contribution will change, Bella's and Gigi's ownership percentages will change (no longer 60%/40%) and ergo, Gigi will be exchanging for lesser shares and a lesser percentage.)
