COMPREHENSIVE PROBLEMS a connect Select problems are available in Connect®. 56. Several years ago, your client, Brooks Robertson, started an office cleaning service. His business was very successful, owing much to his legacy as the greatest defen- sive third baseman in major league history and his nickname, “The Human Vacuum Cleaner." Brooks operated his business as a sole proprietorship and used the cash method of accounting. Brooks was advised by his attorney that it is too risky to op- erate his business as a sole proprietorship and that he should incorporate to limit his liability. Brooks has come to you for advice on the tax implications of incorpora- tion. His balance sheet is presented below. Under the terms of the incorporation, Brooks would transfer the assets to the corporation in return for 100 percent of the company's common stock. The corporation would also assume the company's liabilities (payables and mortgage). Balance Sheet Adjusted Basis FMV Assets Accounts receivable 2$ 5,000 Cleaning equipment (net) 25,000 20,000 Building 50,000 75,000 Land 25,000 50,000 Total assets $100,000 $150,000 Liabilities Accounts payable $0 $ 10,000 Salaries payable 5,000 Mortgage on land and building 35,000 35,000 Total liabilities $ 35,000 $ 50,000 e) What is the corporation's ax basis in each asset it receives from Brooks?
COMPREHENSIVE PROBLEMS a connect Select problems are available in Connect®. 56. Several years ago, your client, Brooks Robertson, started an office cleaning service. His business was very successful, owing much to his legacy as the greatest defen- sive third baseman in major league history and his nickname, “The Human Vacuum Cleaner." Brooks operated his business as a sole proprietorship and used the cash method of accounting. Brooks was advised by his attorney that it is too risky to op- erate his business as a sole proprietorship and that he should incorporate to limit his liability. Brooks has come to you for advice on the tax implications of incorpora- tion. His balance sheet is presented below. Under the terms of the incorporation, Brooks would transfer the assets to the corporation in return for 100 percent of the company's common stock. The corporation would also assume the company's liabilities (payables and mortgage). Balance Sheet Adjusted Basis FMV Assets Accounts receivable 2$ 5,000 Cleaning equipment (net) 25,000 20,000 Building 50,000 75,000 Land 25,000 50,000 Total assets $100,000 $150,000 Liabilities Accounts payable $0 $ 10,000 Salaries payable 5,000 Mortgage on land and building 35,000 35,000 Total liabilities $ 35,000 $ 50,000 e) What is the corporation's ax basis in each asset it receives from Brooks?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:COMPREHENSIVE PROBLEMS
a connect
Select problems are available in Connect®.
56. Several years ago, your client, Brooks Robertson, started an office cleaning service.
His business was very successful, owing much to his legacy as the greatest defen-
sive third baseman in major league history and his nickname, “The Human Vacuum
Cleaner." Brooks operated his business as a sole proprietorship and used the cash
method of accounting. Brooks was advised by his attorney that it is too risky to op-
erate his business as a sole proprietorship and that he should incorporate to limit his
liability. Brooks has come to you for advice on the tax implications of incorpora-
tion. His balance sheet is presented below. Under the terms of the incorporation,
Brooks would transfer the assets to the corporation in return for 100 percent of
the company's common stock. The corporation would also assume the company's
liabilities (payables and mortgage).
Balance Sheet
Adjusted Basis
FMV
Assets
Accounts receivable
2$
5,000
Cleaning equipment (net)
25,000
20,000
Building
50,000
75,000
Land
25,000
50,000
Total assets
$100,000
$150,000
Liabilities
Accounts payable
$0
$ 10,000
Salaries payable
5,000
Mortgage on land and building
35,000
35,000
Total liabilities
$ 35,000
$ 50,000
Transcribed Image Text:e) What is the corporation's ax basis in each asset it receives from Brooks?
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