ACC 410 Chapter Notes - Chapter 19: Tax Deferral, Adjusted Basis, Deferral

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tanhyena210

3 Aug 2020

School

Ball State University

Department

Accounting

Course

ACC 410

Professor

Stanfield

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Document Summary

Realization: occurs when a transaction takes place (there"s an exchange of property rights between two persons; gain or loss is realized when a person engages in transaction. Amount realized adjusted basis of the property transferred = gain/loss realized. Cash received + fmv of the property received + liabilities assumed by transferee(corp) selling. Expenses liabilities assumed by transferor = amount realized. Acquisition basis + capital improvements depreciation = adjusted basis. Gain or loss is recognized (included in taxable income) unless exempted by a provision of tax laws. Congress provides for the deferral of gain/loss on qualifying transfers of property to a corporation in exchange for stock in order to remove tax consequences as an impediment to forming a corporation. Requirements for tax deferral in a corporation formation. The persons transferring property to a corporation must receive only stock in the corporation in return. The persons transferring the property to a corporation must collectively control the corporation after the transaction.

Related Questions

In a tranfer that qualified under sec. 351, George transferredequipment worth $750,000 (adjusted basis $400,000, depreciationrecapture potential $75,000). The equipment was subject to a$150,000 loan, which the transferee corporation assumed as part ofthis transaction. In exchange, George received (1) CS of thetransferee corporation worth $425,000, (2) promissory notes of thetransferee corporation worth $100,000 and (3) cash of $75,000(i.e., total consideration $500,000, with loan assumptionincluded). Answer each question below, which relate to thistransfer by George.

1) Determine the gain or loss realized byGeorge on this transaction.

2) Determine the gain or loss recognized byGeorge on this transaction.

3) Determine the basis that George will assign to the transfereecorporation CS received in this transaction

Determine the basis that George will assign to the PromissoryNotes received in this transaction

bluereindeer131

Zhang incorporated her sole proprietorship by transferringinventory, a building, and land to the corporation in return for100 percent of the corporationâs stock. The property transferred tothe corporation had the following fair market values and taxbases:

FMV Tax Basis

Inventory $ 20,000 $ 10,000

Building 150,000 100,000

Land 230,000 70,000

Total $ 400,000 $ 180,000

The corporation also assumed a mortgage of $200,000 attached tothe building and land. The fair market value of the corporationâsstock received in the exchange was $220,000. The exchange met therequirements to be tax-deferred under Â§351.

. What amount of gain does Zhangrecognize on the transfer of the property to hercorporation?

viridianwhale666

Several years ago, your client, Brooks Robinson, started an office cleaning service. His business was very successful, owing much to his legacy as the greatest defensive third baseman in major league history and his nickname, âThe Human Vacuum Cleaner.â Brooks operated his business as a sole proprietorship and used the cash method of accounting. Brooks was advised by his attorney that it is too risky to operate his business as a sole proprietorship and that he should incorporate to limit his liability. Brooks has come to you for advice on the tax implications of incorporation. His balance sheet is presented below. Under the terms of the incorporation, Brooks would transfer the assets to the corporation in return for 100 percent of the companyâs common stock. The corporation would also assume the companyâs liabilities (payables and mortgage). (Negative amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)

Balance Sheet
		Adjusted Basis		FMV
Assets
Accounts receivable	$	0	$	5,000
Cleaning equipment (net)		25,000		20,000
Building		50,000		75,000
Land		25,000		50,000
Total assets	$	100,000	$	150,000
Liabilities
Accounts payable	$	0	$	10,000
Salaries payable		0		5,000
Mortgage on land and building		35,000		35,000
Total liabilities	$	35,000	$	50,000

a. How much gain or loss does Brooks realize on the transfer of each asset to the corporation?

	Realized gain/loss
Accounts receivable
Equipment
Building
Land
Total	$0

b. How much, if any, gain or loss (on a per asset basis) does Brooks recognize?

	Realized gain/loss
Accounts receivable
Equipment
Building
Land
Total	$0

c. How much gain or loss, if any, must the corporation recognize on the receipt of the assets of the sole proprietorship in exchange for the corporationâs stock?

Gain or loss recognized -

d. What tax basis does Brooks have in the corporationâs stock?

Tax Basis

e. What is the corporationâs tax basis in each asset it receives from Brooks?

	Tax Basis
Accounts Receivable
Equipment
Building
Land
Total

f. How much if any gain or loss will Brooks recognize if he had taken back a 10-year note worth $25,000 plus stock worth $75,000 plus the liability assumption? (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

	Realized gain/loss
Accounts receivable
Equipment
Building
Land
Total	$0

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ACC 410 Chapter Notes - Chapter 19: Tax Deferral, Adjusted Basis, Deferral

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