Problem 2-2 o On February 1 of year 1, Richard, Mike, Patrick, and Sean form Bro

Question

  Problem 2-2

o   On February 1 of year 1, Richard, Mike, Patrick,  and Sean form Brothers Corp and transfer the following items:

Property Transferred

Transferor

Asset

Basis to Transferor

FMV

Number of Common Shares Issued

Richard

Land

27000

40000

600

Building

28000

80000

Mortgage on Land and

  Building

70000

70000

Mike

Machines

25000

40000

400

Patrick

Truck

15000

5000

50

Sean

Legal Services

0

15000

150

Richard purchased the building and land several years ago, $40,000 for the building, and $22,000 for the land. Depreciation has been claimed using the straight line method.

In addition to the machines, Mike received a note from Brothers corp. due in 3 years for $10,000 at the market interest rate. Mike originally purchased the machines 3 years ago for $50,000.

In addition to the truck, Patrick received a cash payment of $10,000. Patrick

Property Transferred

Transferor

Asset

Basis to Transferor

FMV

Number of Common Shares Issued

Richard

Land

27000

40000

600

Building

28000

80000

Mortgage on Land and

  Building

70000

70000

Mike

Machines

25000

40000

400

Patrick

Truck

15000

5000

50

Sean

Legal Services

0

15000

150

Explanation / Answer

a. Yes it meets the requirement of Sec 351.

b.

Cost to Self Depreciation Current Value FMV Gain/(Loss) R Land               27,000.00                              -                 27,000.00            40,000.00        13,000.00 Building               28,000.00               28,000.00                              -              80,000.00        80,000.00 Mortgage               70,000.00               70,000.00                              -              70,000.00        70,000.00 Mike Machines               25,000.00            40,000.00        40,000.00 Patrick Truck               15,000.00              5,000.00           5,000.00 S Services                              -                                -                 15,000.00            15,000.00                        -           250,000.00

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