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Adams transfers Blackacre to Newco in exchange for 100% of its common stock. Adams (6) acquired Blackacre for $50,000 cash plus a purchase money mortgage of $200,000. Adams has claimed $100,000 of depreciation on Blackacre and has paid $80,000 of the purchase money mortgage. Blackacre had a FMV of $400,000 at the time of the transfer. (a) What are the tax consequences to Adams and Newco? Assume Adams had paid only $30,000 of the purchase money mortgage, how would that affect your answer to part (a)? (b) Assume in part (b) that Adams transferred $20,000 of cash to Newco along with Blackacre, how would that affect your answer to part (a)? (c) (d) Assume in part (b) that Adams had transferred his own promissory note maturing in 2 years with a face value of $20,000 to Newco along with Blackacre, how would that affect your answer to part (b)?

Adams transfers Blackacre to Newco in exchange for 100% of its common stock. Adams (6) acquired Blackacre for $50,000 cash plus a purchase money mortgage of $200,000. Adams has claimed $100,000 of depreciation on Blackacre and has paid $80,000 of the purchase money mortgage. Blackacre had a FMV of $400,000 at the time of the transfer. (a) What are the tax consequences to Adams and Newco? Assume Adams had paid only $30,000 of the purchase money mortgage, how would that affect your answer to part (a)? (b) Assume in part (b) that Adams transferred $20,000 of cash to Newco along with Blackacre, how would that affect your answer to part (a)? (c) (d) Assume in part (b) that Adams had transferred his own promissory note maturing in 2 years with a face value of $20,000 to Newco along with Blackacre, how would that affect your answer to part (b)?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Adams transfers Blackacre to Newco in exchange for 100% of its common stock. Adams (6) acquired Blackacre for $50,000 cash plus a purchase money mortgage of $200,000. Adams has claimed $100,000 of depreciation on Blackacre and has paid $80,000 of the purchase money mortgage. Blackacre had a FMV of $400,000 at the time of the transfer. (a) What are the tax consequences to Adams and Newco? Assume Adams had paid only $30,000 of the purchase money mortgage, how would that affect your answer to part (a)? (b) Assume in part (b) that Adams transferred $20,000 of cash to Newco along with Blackacre, how would that affect your answer to part (a)? (c) (d) Assume in part (b) that Adams had transferred his own promissory note maturing in 2 years with a face value of $20,000 to Newco along with Blackacre, how would that affect your answer to part (b)?
Transcribed Image Text:Adams transfers Blackacre to Newco in exchange for 100% of its common stock. Adams (6) acquired Blackacre for $50,000 cash plus a purchase money mortgage of $200,000. Adams has claimed $100,000 of depreciation on Blackacre and has paid $80,000 of the purchase money mortgage. Blackacre had a FMV of $400,000 at the time of the transfer. (a) What are the tax consequences to Adams and Newco? Assume Adams had paid only $30,000 of the purchase money mortgage, how would that affect your answer to part (a)? (b) Assume in part (b) that Adams transferred $20,000 of cash to Newco along with Blackacre, how would that affect your answer to part (a)? (c) (d) Assume in part (b) that Adams had transferred his own promissory note maturing in 2 years with a face value of $20,000 to Newco along with Blackacre, how would that affect your answer to part (b)?
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