Question

Ron and Hermione formed Wizard Corporation on January 2. Ron contributed cash of $320,000 in return for 50 percent of the corporation’s stock. Hermione contributed a building and land with the following fair market values and adjusted basis in return for 50 percent of the corporation’s stock:

	FMV			Tax-Adjusted Basis
Building		168,000			42,000
Land		252,000			168,000
Total	$	420,000		$	210,000

To equalize the exchange, Wizard Corporation paid Hermione $100,000 in addition to her stock. (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.)

rev: 10_05_2018_QC_CS-141665

a. What amount of gain or loss does Ron realize on the formation of the corporation? What amount, if any, does he recognize?
b. What is Ron’s tax basis in the stock he receives in return for his contribution of property to the corporation?
c. What amount of gain or loss does Hermione realize on the formation of the corporation? What amount, if any, does she recognize?
d. What is Hermione’s tax basis in the stock she receives in return for her contribution of property to the corporation?
e. What adjusted basis does Wizard Corporation take in the land and building received from Hermione? (Do not round intermediate calculations.)

Answer 1

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