Question

Wade and Paul form Swan Corporation with the following investments. Wade transfers machinery (basis of $40,000 and fair market value of $100,000), while Paul transfers land (basis of $20,000 and fair market value of $90,000) and services rendered (worth $10,000) in organizing the corporation. Each is issued 25 shares in Swan Corporation. With respect to the transfers: a. Wade has no recognized gain; Paul recognizes income/gain of $80,000. b. Neither Wade nor Paul has recognized gain or income on the transfers. c. Swan Corporation has a basis of $30,000 in the land transferred by Paul. d. Paul has a basis of $30,000 in the 25 shares he acquires in Swan Corporation. e. None of the above.

Answer 1

correct option is d. Paul has a basis of $30,000 in the 25 shares he acquires in Swan Corporation

Step-by-step explanation:

given data

Wade transfers machinery basis = $40,000

Wade transfers machinery fair market value= $100,000

Paul transfers land basis = $20,000

Paul transfers land fair market value = $90,000

services rendered = $10,000

to find out

Each is issued 25 shares in Swan Corporation With respect to the transfers is

solution

we know here that wade no gain on transfer while paul recognize income $10000

that is stock receive for services rendered

and

we know swan corporation basis in machinery = $40000

and in land = $20000

and

paul has basis in stock in Swan Corporation = $20000 basis of land + $10000 income recognized from services rendered

so

paul has basis in stock = $30000

so correct option is d. Paul has a basis of $30,000 in the 25 shares he acquires in Swan Corporation