Rafael transfers the following assets to Crane Corporation in exchange for all o

Question

Rafael transfers the following assets to Crane Corporation in exchange for all of its stock.

Note: Assume that neither Rafael nor Crane plans to make any special tax elections at the time of incorporation.

Note: If an amount is zero, enter "0". Do not round any division.

a. Rafael's realized _________________ is $ _________________ . Of this amount, $ _________________ is recognized.

b. Assuming no election is made, Rafael's basis in the stock is $ _________________ .

c. Crane's basis is $ _________________ for inventory, $ _________________ for equipment, and $ _________________ for shelving.

d. If Rafael plans to hold his stock for a substantial period of time, he and Crane may elect to allow Crane _________________ a carryover basis in the assets received. Its basis in the assets would also change to $ _________________ for inventory, $ _________________ for equipment, and $ _________________ for shelving.

Assets Rafael's Adjusted Basis Fair Market Value Inventory $60,000 $100,000 Equipment 150,000 105,000 Shelving 80,000 65,000

Explanation / Answer

Question a). Solution :- Realized loss = Adjusted basis of Rafael - Fair market value of assets for Rafael.

= (60000 + 150000 + 80000) - (100000 + 105000 + 65000)

= 290000 - 270000

= $ 20,000.

Out of $ 20,000 realized loss, $ 0 is recognized.

Conclusion :- Rafael's realized loss is $ 20000. Of this amount $ 0 is recognized.

Question b). Solution :- Rafael's basis in stock = Adjusted basis of Rafael in assets.

= 60000 + 150000 + 80000

= $ 290,000.

Conclusion :-  Rafael's basis in stock = $ 290,000.

Question c). Answer :- Crane's basis is $ 60000 for inventory, $ 135000 for equipment and $ 75000 for shelving.

Question d). Answer :- Crane to take a carryover basis in the assets received. Crane's basis is $ 60000 for inventory, $ 150000 for equipment and $ 80000 for shelving.

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