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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 tax basis in return for 50 percent of the corporation's stock: Building Land Total FMV $ 75,000 175,000 $ 250,000 Adjusted Tax Basis $ 20,000 80,000 $ 100,000 To equalize the exchange, Wizard Corporation paid Hermione $50,000 in addition to her stock.

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 tax basis in return for 50 percent of the corporation's stock: Building Land Total FMV $ 75,000 175,000 $ 250,000 Adjusted Tax Basis $ 20,000 80,000 $ 100,000 To equalize the exchange, Wizard Corporation paid Hermione $50,000 in addition to her stock.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 tax basis in return for 50 percent of the corporation's stock: Building Land Total FMV $75,000 175,000 $ 250,000 Adjusted Tax Basis $ 20,000 80,000 $ 100,000 To equalize the exchange, Wizard Corporation paid Hermione $50,000 in addition to her stock. Required: a. What amount of gain or loss does Ron recognize on the formation of the corporation? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. b. What is Ron's tax basis in the stock received in return for the contribution of property to the corporation? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. c. What amount of gain or loss does Hermione recognize on the formation of the corporation? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. What is Hermione's tax basis in the sto received in return for the contribution property to corporation? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. e. What tax basis does Wizard Corporation take in the land and building received from Hermione? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. f. Assume Hermione's tax basis in the land was $200,000. What amount of gain or loss does Hermione realize on the formation of the corporation? What amount, if any, does she recognize? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. g. Assume Hermione's tax basis in the land was $200,000. What tax basis does Wizard Corporation take in the land and building received from Hermione? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.
Transcribed Image Text: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 tax basis in return for 50 percent of the corporation's stock: Building Land Total FMV $75,000 175,000 $ 250,000 Adjusted Tax Basis $ 20,000 80,000 $ 100,000 To equalize the exchange, Wizard Corporation paid Hermione $50,000 in addition to her stock. Required: a. What amount of gain or loss does Ron recognize on the formation of the corporation? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. b. What is Ron's tax basis in the stock received in return for the contribution of property to the corporation? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. c. What amount of gain or loss does Hermione recognize on the formation of the corporation? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. What is Hermione's tax basis in the sto received in return for the contribution property to corporation? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. e. What tax basis does Wizard Corporation take in the land and building received from Hermione? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. f. Assume Hermione's tax basis in the land was $200,000. What amount of gain or loss does Hermione realize on the formation of the corporation? What amount, if any, does she recognize? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. g. Assume Hermione's tax basis in the land was $200,000. What tax basis does Wizard Corporation take in the land and building received from Hermione? Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.
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