Accounting On March 19, 2022, Rick and Michelle form Road Runner Corporation as equal 50/50 shareholders with the following investment, for which each received 10,000 shares of Road Runner stock: Rick Cash From Michelle Equipment (basis $100,000; fair market value $50,000) $ 50,000 Land (basis $600,000; fair market value $850,000) From $900,000 $850,000 Tax consequences of this formation? Would your answer change if Rick contributed just $850,000 because Michelle's equipment was subject to a liability of $50,000, which Road Runner assumed? Would your answer change if Rick contributed $900,000 in return for 10,000 shares but Michelle instead received $9,000 in cash and 9,900 shares (worth $891,000) of stock of Road Runner in return for her contribution of land & equipment, and the equipment was not subject to a liability?
Accounting On March 19, 2022, Rick and Michelle form Road Runner Corporation as equal 50/50 shareholders with the following investment, for which each received 10,000 shares of Road Runner stock: Rick Cash From Michelle Equipment (basis $100,000; fair market value $50,000) $ 50,000 Land (basis $600,000; fair market value $850,000) From $900,000 $850,000 Tax consequences of this formation? Would your answer change if Rick contributed just $850,000 because Michelle's equipment was subject to a liability of $50,000, which Road Runner assumed? Would your answer change if Rick contributed $900,000 in return for 10,000 shares but Michelle instead received $9,000 in cash and 9,900 shares (worth $891,000) of stock of Road Runner in return for her contribution of land & equipment, and the equipment was not subject to a liability?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![Accounting
On March 19, 2022, Rick and Michelle form Road Runner Corporation as
equal 50/50 shareholders with the following investment, for which each
received 10,000 shares of Road Runner stock:
Rick
Cash
From Michelle
Equipment (basis $100,000; fair market value
$50,000)
$ 50,000
Land (basis $600,000; fair market value
$850,000)
From
$900,000
$850,000
a. Tax consequences of this formation?
b. Would your answer change if Rick contributed just $850,000 because Michelle's
equipment was subject to a liability of $50,000, which Road Runner assumed?
c. Would your answer change if Rick contributed $900,000 in return for 10,000
shares but Michelle instead received $9,000 in cash and 9,900 shares (worth
$891,000) of stock of Road Runner in return for her contribution of land &
equipment, and the equipment was not subject to a liability?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd796ae82-b7a1-4aac-bdc2-618bcc17e432%2F95ff8014-3cf8-427d-8df7-b76a93c71b64%2Ff6v1t0p_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Accounting
On March 19, 2022, Rick and Michelle form Road Runner Corporation as
equal 50/50 shareholders with the following investment, for which each
received 10,000 shares of Road Runner stock:
Rick
Cash
From Michelle
Equipment (basis $100,000; fair market value
$50,000)
$ 50,000
Land (basis $600,000; fair market value
$850,000)
From
$900,000
$850,000
a. Tax consequences of this formation?
b. Would your answer change if Rick contributed just $850,000 because Michelle's
equipment was subject to a liability of $50,000, which Road Runner assumed?
c. Would your answer change if Rick contributed $900,000 in return for 10,000
shares but Michelle instead received $9,000 in cash and 9,900 shares (worth
$891,000) of stock of Road Runner in return for her contribution of land &
equipment, and the equipment was not subject to a liability?
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