West Coast Production, Inc.

On August 1, 2012, four unrelated individuals created West Coast Production, Inc. to produce South Pacific styled furniture.William Sauter transferred two pieces of equipment, a lathe with a fair market value (adjusted basis) of $42,520 ($32,450) and a table saw with a fair market value (adjusted basis) of $37,480 ($33,500) for 320 shares of stock.James Wilson, a cash basis taxpayer, transferred receivables with a FMV of $30,000, land with a FMV (adjusted basis) of $40,000 ($37,500) and $75,000 of cash for 580 shares of stock.The receivables were collected in 2012. The land will be held as an investment.Walter Jones transferred a building with an adjusted basis of $108,000 subject to a mortgage of $124,000 into the business for 420 shares of stock.Mr. Jones rented the land on which the building was located to the corporation for $11,250 per month. Finally, Jojo Latime contributed a truck with a fair market value (adjusted basis) of $37,500 ($42,400) for 115 shares of stock and cash.Cash McCoy, an attorney, was given 248 shares of stock for legal services in creating the company, including $9,500 for registering and issuing the stock.The company elected to adjust stock basis for unrecognized losses.Mr. McCoy sold his shares to Mr. Sauter on April 6, 2013 for $235 per share.

On September 1, 2017, as part of an expansion, the company purchased a sander for $52,000.On December 31, 2017, Sauter, Wilson and Jones transferred from a cash basis joint venture into the company receivables with a FMV of $37,800 and a new undepreciated saw with a fair market value (adjusted basis) of $52,200 ($51,000).Each man received 150 shares of stock. $32,400 of the receivables was collected in 2018 with the remainder written off that year (the only bad debts in 2018).

A) Provide the tax basis in each person's stock and detail the gain or loss realized and recognized by each person on their contributions to the company on August 1, 2012.

B) Calculate the amount and character of the gain recognized by McCoy on the sale of his stock on April 6, 2013.

Name FMV received Adjusted basis Gain Realized Recognized Gain Asset Basis Stock Basis

William 79,930 65,950 13,9800

James

Walter - Building 108,000

Mortgage124,000

Stock

105000 stock + 124000 mort relief

JoJo

8750 cash received

Cash Mccoy - services

b)Sales price

cost

Loss

ACCTS Receivable

Saw

Stock basis

Financial statement Tax return

Sales 2740350

Cost of goods sold 1375954

Gross profit 1364396

Operating expenses

Salaries 776321

Rent expense 135000

Bad debt expense 5400

Impairment of building 12000

Depreciation expense 30203

marketing expense 68222

Other bus expense 7350

Orgainzational expense

Total operating expense 1034496

Operating income 329900

Other income (Expense)

Interest expense- 12500

Loss on sale of land- 12450

Gain on sale of stock 510

Loss on sale of saw- 6800

Dividend income 1450

Unrealized gain (MS) 2800

-26990

Net income before special deductions 302910

Dividend received ded

Charitable contribution

Taxable income

MACRS Depreciation Adjusted Basis Calendar Year table-year Rate Depreciation

land Sale

Sales price

Cost

Loss on land

Stock sale

Sales price

Cost

Gain on sale of stock

Sales price

Cost

Accum Depreciation

Gain on sale of saw