Question

Ramon incorporated his sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and adjusted bases:

FMV Adjusted Basis
Inventory $30,000 $11,100
Building 67,750 36,750
Land 168,000 66,000
Total $ 265,750 $113,850

The fair market value of the corporation's stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Ramon.

a. What amount of gain or loss does Ramon realize on the transfer of the property to his corporation?

Answer 1

Ramon realizes a gain of $151,900 from the transfer of his assets to the corporation, calculated by subtracting the adjusted basis of the transferred assets from their fair market value.

Step-by-step explanation:

When Ramon transfers assets to his corporation in exchange for its stock, he's engaging in a transaction that has potential tax consequences. To calculate the gain realized on the transfer, we need to subtract the adjusted basis of the property transferred from the fair market value (FMV) of the stock received. In this case, the stock's FMV equals the FMV of the transferred assets.

The gain realized is:

• FMV of assets transferred: $265,750
• Adjusted basis of assets transferred: $113,850
• Gain realized: $265,750 (FMV) - $113,850 (Adjusted Basis) = $151,900

Ramon realizes a gain of $151,900 upon transferring his inventory, building, and land to the corporation. This gain is the difference between the FMV of the property received by the corporation and the adjusted basis of the property given up by Ramon.