Question

John organized Toucan Corporation 10 years ago. He contributed property worth $1,000,000 (basis of $200,000) for 2,000 shares of stock in Toucan (representing 100% ownership). John later gave each of his children, Julie and Rachel, 500 shares of the stock. In the current year, John transfers property worth $350,000 (basis of $170,000) to Toucan for 1,000 more of its shares. What gain, if any, will John recognize on the transfer?

Answer 1

$180,000

Step-by-step explanation:

Net shares held after transfer and acquisition:

= Existing shares owned by John - Shares transferred to Julie and Rachel + Shares purchased

= 2,000 - (500 × 2) + 1,000

= 2,000 - 1,000 + 1,000

= 2,000 shares

Therefore, the gain recognized by John on the transfer is as follows:

= Value of shares received - Transfer worth of property

= $350,000 - $170,000

= $180,000