AccountingOn March 19, 2022, Rick and Michelle form Road Runner Corporation asequal 50/50 shareholders with the following investment, for which eachreceived 10,000 shares of Road Runner stock:RickCashFrom MichelleEquipment (basis $100,000; fair market value$50,000)$ 50,000Land (basis $600,000; fair market value$850,000)From$900,000$850,000a. Tax consequences of this formation?b. Would your answer change if Rick contributed just $850,000 because Michelle'sequipment 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 10,000shares 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?

Step: 1 Required a) Tax consequences of formation of the Corporation are as below:…

Answered: Accounting On March 19, 2022, Rick and…

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

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Required information Kevan, Jerry, and Dave formed Albee LLC. Jerry and Dave each contributed $245,000 in cash. Kevan contributed the following assets: Kevan: Cash Land* Totals Tax basis Fair Market Value *Nonrecourse liability secured by the land equals $210,000. Each member received a one-third capital and profits interest in the LLC. Note: Leave no answer blank. Enter zero if applicable. Round to the nearest whole thousand. Basis $ 15,000 120,000 $ 15,000 440,000 $ 135,000 $ 455,000 g. If the lender holding the nonrecourse liability secured by Kevan's land required Kevan to guarantee 1/3 of the liability and Jerry to guarantee the remaining 2/3 of the liability when Albee LLC was formed, what are the members' tax bases in their LLC interests? Kevan $285,000 X Answer is complete but not entirely correct. Jerry $ 285,000 $ Dave 285,000
Ramona and Hermione formed Wiley Corporation on January 2. Ramona contributed cash of $ 215,000 in return for 50 percent of the corporation's stock. Hermione contributed a building and land with the following fair market values and adjusted tax bases in return for 50 percent of the corporation's stock: FMV Adjusted Tax Basis Building $ 80,625 $ 21, 500 Land 188, 125 86,000 Total $ 268, 750 $ 107,500 To equalize the exchange, Wiley Corporation paid Hermione $53, 750 in addition to her stock. e. What adjusted tax basis does Wiley Corporation take in the land and building received from Hermione?
María and Bob form Robin Corporation. María transfers property worth $420,000 (basis of $150,000) for 70 shares in Robin Corporation. Bob receives 30 shares for property worth $15,000 (basis of $3,000) and for legal services (worth $165,000) in organizing the corporation. a. What gain or income, if any, will the parties recognize on the transfer? María recognizes no gain or loss X of $ a gift X of $ 165,000 ✓. b. What basis do María María has a basis of $ 0 X and Bob recognizes a gain and Bob have in the Robin Corporation stock? 150,000 X, while Bob has a basis of $ 45,000 X in the stock. ✓of $ c. What is Robin Corporation's basis in the property and services it received from María and Bob? Robin Corporation has a basis of $ Bob transferred. 150,000 X in the property María transferred and a basis of $ 15,000 X and has 30,000 X in the property
In 2020, Martin and Rebecca formed White Corporation. Martin transfers real estate with an adjusted basis of $260,000 and a fair market value of $350,000 to the newly formed White Corporation in exchange for 75% of the common stock of White Corporation. The real estate was encumbered by a mortgage of $275,000 which White Corporation assumed. Rebecca contributed equipment with a fair market value of $35,000 and an adjusted basis of $15,000 in exchange for 25% of the common stock and a $10,000 bond. What is the amount of gain or loss realized and recognized by Martin on the transfer of the real estate? What basis does Martin take in White Corporation stock? What basis does White Corporation take in the real estate contributed by Martin? What is the amount of gain or loss realized and recognized by Rebecca on the transfer of the equipment? What basis does Rebecca take in White Corporation stock? What basis does White Corporation take in the equipment contributed by Rebecca?
Multiple shareholders form a new corporation in exchange for stock with a fair market value of $1,000 per share. Marky transfers investment land (current fair market value of $35,000) that he purchased 10 year ago for $15,000. In exchange, Marky receives 30 shares of stock and $5,000 cash. Anders transfers a machine with a basis of $45,000 and a fair market value of $35,000. Anders receives 30 shares of stock and $5,000 cash. Emmy transfers a rental office building (current fair market value of $45,000) that she purchased 20 years ago for $60,000. Its current basis is $15,000 after recognition of $45,000 in depreciation expense. The corporation assumes the $20,000 balance on the original mortgage and Emmy receives 25 shares of stock from the corporation in the exchange. Jace provided the legal services to organize the corporation (value $5,000) and contributes $10,000 in cash in exchange for 15 shares of stock. How much gain does Emmy recognize? a. 0 b. $5,000 c. $15,000 d. $20,000…
15.Ron and Hermione formed Wizard Corporation on January 2. Ron contributed cash of $200,000 in return for 50 percent of the corporation’s stock. Hermione contributed a building and land with the following fair market values and adjusted tax bases in return for 50 percent of the corporation’s stock: (Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.) FMV Adjusted Tax Basis Building $ 75,000 $ 20,000 Land 175,000 80,000 Total $ 250,000 $ 100,000 To equalize the exchange, Wizard Corporation paid Hermione $50,000 in addition to her stock. What amount of gain or loss does Ron recognize on the formation of the corporation? Gain or loss recognized
2
Dave LaCroix recently received a 10 percent capital and profits interest in Cirque Capital LLC in exchange for consulting services he provided. If Cirque Capital had paid an outsider to provide the advice, it would have deducted the payment as compensation expense. Cirque Capital's balance sheet on the day Dave received his capital interest appears below: Assets: Cash Investments Land Totals Liabilities and capital: Nonrecourse liabilities Tatsuki* Robert* Totals Tax basis $ Dave Basis 21,000 $ 180,000 130,000 230,000 $ 540,000 Answer is not complete. Tatsuki Robert $ 210,000 165,000 165,000 $ 540,000 *Assume that Tatsuki's basis and Robert's basis in their LLC interests equal their tax basis capital accounts plus their respective shares of nonrecourse liabilities. Note: Leave no answer blank. Enter zero if applicable. Fair Market Value e. Compute each member's tax basis in his LLC interest immediately after Dave's receipt of his interest if Dave receives only a profits interest. $…
6a.Harry and Sally formed the Evergreen partnership by contributing the following assets in exchange for a 50 percent capital and profits interest in the partnership: Basis Fair Market Value Harry: Cash $ 30,000 $ 30,000 Land 100,000 120,000 Totals $ 130,000 $ 150,000 Sally: Equipment used in a business 200,000 150,000 Totals $ 200,000 $ 150,000 What is Evergreen’s tax basis in its assets?
Required information [The following information applies to the questions displayed below] Amanda would like to organize BAL as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 8 percent annual before-tax return on a $500,000 investment. Amanda's marginal income tax rate is 37 percent, and her tax rate on qualified dividends and net capital gains is 20%. Assume that BAL will distribute half of its after-tax earnings every year as a dividend if it is formed as a C corporation. Assume the income is not eligible for the QBI deduction. Further, when computing your answers, include the self-employment tax (use a 2.9% marginal rate for self-employment income because Amanda has salary in excess of the wage base limit) but not the additional Medicare tax or the net investment income tax. a. How much cash after taxes would Amanda receive from her investment in the first year if BAL is organized as an LLC? What if BAL is…
Required information [The following information applies to the questions displayed below] Mason (single) is a 50 percent shareholder in Angels Corporation (an S Corporation). Mason receives a $180,000 salary working full time for Angels Corporation. Angels Corporation reported $400,000 of taxable business income for the year (2023). Before considering his business income allocation from Angels and the self-employment tax deduction (if any), Mason's adjusted gross income is $180,000 (all salary from Angels Corporation). Mason claims $50,000 in itemized deductions. Answer the following questions for Mason. Note: Leave no answer blank. Enter zero if applicable. c. Assume the same facts as question (b), except that Angels Corporation reported $150,000 of taxable business income for the year. What is Mason's deduction for qualified business income? Ignore the wage-based limitation when computing the deduction. Deduction for qualified business income CATE
19. Ron and Hermione formed Wizard Corporation on January 2. Ron contributed cash of $200,000 in return for 50 percent of the corporation’s stock. Hermione contributed a building and land with the following fair market values and adjusted tax bases in return for 50 percent of the corporation’s stock: (Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.) FMV Adjusted Tax Basis Building $ 75,000 $ 20,000 Land 175,000 80,000 Total $ 250,000 $ 100,000 To equalize the exchange, Wizard Corporation paid Hermione $50,000 in addition to her stock. What adjusted tax basis does Wizard Corporation take in the land and building received from Hermione? Adjusted tax basis land and building?

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