Ask Question
2 April, 08:53

12. Conan and Andy decide to form a new corporation, LN Corp. Conan contributes property with a basis of $10,000 and a fair market value of $18,000 in exchange for 5 shares of LN stock and $13,000 in cash, which LN borrows from a bank to finance. Andy contributes property with a basis of $35,000 and a fair market value of $80,000 in exchange for 80 shares of LN stock. a. How much taxable gain or loss will Conan recognize as a result of the transaction b. What basis will Conan take in the LN stock he receives

+1
Answers (1)
  1. 2 April, 11:16
    0
    a. Conan will recognise a taxable gain of $8,000 as a result of the transaction

    b. The basis Conan will take in the LN stock he receives is $ 5,000

    Explanation:

    a.

    Given

    Fair market value = $18,000

    Adjusted Basis = $10,000

    A taxable gain / loss is calculated by subtracting adjusted basis from fair market value.

    Hence,

    Taxable gain or loss that Conan will recognize as a result of the transaction = Fair Market Value - Adjusted Basis

    = $18,000 - $10,000

    = $ 8,000

    Since it is a positive value, then the it's a taxable gain

    b.

    Fair market value = $18,000

    Cash Received = $13,000

    The basis Conan will take in the LN stock he receives is calculated as follows;

    Basis in stock = Fair market value - Cash received

    = $18,000 - $13,000

    = $ 5,000
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “12. Conan and Andy decide to form a new corporation, LN Corp. Conan contributes property with a basis of $10,000 and a fair market value of ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers