Question

Rhonda and Marta form Blue Corporation. Rhonda transfers land (basis of 55,000 and fair market value of 180,000) for 50 shares plus 20,000 cash. Marta transfers 160,000 cash for 50 shares in Blue Corporation. What is Rhonda's basis in the Blue Corporation stock?

1) 55,000
2) 125,000
3) 180,000
4) None of these choices are correct

Answer 1

Rhonda's basis in the Blue Corporation stock would be her original basis in the land option 1. ($55,000) minus the cash received ($20,000), totaling $35,000. This value is not listed in the provided choices.

Step-by-step explanation:

When Rhonda transfers land with a basis of $55,000 and a fair market value of $180,000 to Blue Corporation for 50 shares and $20,000 cash, her basis in the Blue Corporation stock is calculated as follows:

1. Start with the original basis of the asset transferred: $55,000
2. Less cash received: -$20,000
3. Adjusted basis: $35,000

Since Rhonda has received cash in addition to the stock, the basis of the stock will not be simply the basis of the transferred property. The cash received must be subtracted from the original basis, leading to an adjusted basis for the stock. Therefore, the correct answer is (1) $55,000 minus the $20,000 received, totaling $35,000, which is not one of the provided choices.