Arnold and Victoria form Deep Purple Corporation with the following transfers: i

Question

Arnold and Victoria form Deep Purple Corporation with the following transfers: inventory from Arnold (basis of $360,000 and fair market value of $400,000) and improved real estate from Victoria (basis of $320,000 and fair market value of $375,000). Victoria, an accountant, agrees to contribute her services (worth $25,000) in organizing Deep Purple. The corporation’s stock is distributed equally to Arnold and Victoria. As a result of these transfers: Select one:

a. Victoria has a recognized gain of $55,000 on the transfer of the real estate.

b. Deep Purple can deduct $25,000 as a business expense.

c. Deep Purple has a basis of $360,000 in the inventory.

d. Deep Purple has a basis of $375,000 in the real estate.

Explanation / Answer

d. Deep Purple has a basis of $375,000 in the real estate.

As when asset is taken in corporation the fair value is taken.

Victoria agrees to contribute her service which has worth of $25000 it has this worth but it cannot be treated as business expense as it is not paid, if it is paid than only it can be considered as business expense

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