Question

Rhonda and Marta form Yo Yo 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 Yo Yo Corporation.

a. Rhonda’s basis in the YoYo Corporation stock is $55,000.
b. Rhonda recognizes a gain on the transfer of $125,000.
c. YoYo Corporation’s basis in the land is $55,000.
d. YoYo Corporation’s basis in the land is $180,000.

Answer 1

A. Rhonda’s basis in the YoYo Corporation stock is $55,000.

Step-by-step explanation:

Answer 2

a. Rhonda’s basis in the YoYo Corporation stock is $55,000.

Step-by-step explanation:

The computation of Rhonda’s basis in the YoYo Corporation stock is shown below:-

Rhonda’s basis in the YoYo Corporation stock = Basis of the land transferred + gain recognized - Boot received

= $55,000 +$20,000 - $20,000

= $75,000 - $20,000

= $55,000

Rhonda recognizes income to the extent of the $20,000 cash received. So, stock basis is $55,000.