Mickey, Ray, and Debra decide to create UNA Corporation to manufacture and sell
ID: 2475575 • Letter: M
Question
Mickey, Ray, and Debra decide to create UNA Corporation to manufacture and sell fireplaces. Mickey and Ray contribute the following assets to the corporation on January 1, 2015: Individual Property Adjusted Basis Fair Market Value Mickey Equipment $30,000 $50,000 Ray Land $25,000 $65,000 The property contributed by Mickey has a $40,000 liability attached to it that UNA assumes. Mickey had used this equipment in another business for the last 3 years. The land owned by Ray was held as investment for 8 months before he contributed it to UNA. Mickey and Ray receive 15% and 65%, respectively, of UNA's common stock. Debra contributed services to UNA during January 2015 valued at $20,000 in return for 20% of UNA's common stock. She received her stock on January 1, 2015. Compute the gain that Mickey must recognize as a result of this transaction and the basis in his stock. A1 lock copy cut paste A B C 1 Shareholder Gain Basis in Stock 2 Mickey
Explanation / Answer
Solution:
Mickey
Equipment
Fair Market Value $50,000
Adjusted Basis $30,000
Net increase in value $20,000
Ray
Land
Fair Market Value $65,000
Adjusted Basis $25,000
Net increase in value $40,000
Debra
Contributed services to UNA valued at $20,000 (20%)
Gain and the basis in his stock of Mickey
Gain $0
As per section §351, Mickey do not recognize any gain. Mickey is contributing property and as per the rule no gain/loss will be accepted if property is transferred to a business by one or more persons only in exchange for stock in such corporation.
Basis in Stock $20,000 ($50,000 - $30,000)
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