Your client, Cara Ramos, is forming a T-shirt business, Equitees, with three of her colleagues. Each has something to contribute to the business. ⚫ Cara is contributing property (land) that has a debt (mortgage) on it, encumbered property. She will receive a 30% stock of the company. It is important to note, since the land still has a mortgage on it, the business will be assuming this existing mortgage. ⚫ Michael is contributing cash to the business and will receive a 30% stock. ⚫ Cathy is contributing property (machinery). The property, while without debt, has been used in her own previous business and has depreciated in value over the years. Cathy will receive 30% equity in return for her contribution. • Nate doesn't have anything to contribute, so he is going to perform services (managing the business) for the corporation. On the open market, his services are worth approximately $50,000 a year. In return, he will not receive compensation but 10% equity instead. The group's lawyer is advising them that their form of corporation should be a C Corporation, to best position themselves for potential future sale or for a venture capital investor. The lawyer will handle the legal aspect of putting together the corporation, everything from creating bylaws to filings. In total, the company needs about $500,000 to get the business off the ground.
Your client, Cara Ramos, is forming a T-shirt business, Equitees, with three of her colleagues. Each has something to contribute to the business. ⚫ Cara is contributing property (land) that has a debt (mortgage) on it, encumbered property. She will receive a 30% stock of the company. It is important to note, since the land still has a mortgage on it, the business will be assuming this existing mortgage. ⚫ Michael is contributing cash to the business and will receive a 30% stock. ⚫ Cathy is contributing property (machinery). The property, while without debt, has been used in her own previous business and has depreciated in value over the years. Cathy will receive 30% equity in return for her contribution. • Nate doesn't have anything to contribute, so he is going to perform services (managing the business) for the corporation. On the open market, his services are worth approximately $50,000 a year. In return, he will not receive compensation but 10% equity instead. The group's lawyer is advising them that their form of corporation should be a C Corporation, to best position themselves for potential future sale or for a venture capital investor. The lawyer will handle the legal aspect of putting together the corporation, everything from creating bylaws to filings. In total, the company needs about $500,000 to get the business off the ground.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Calculate the following for the Corporation that is receiving the properties/services
- FMV of property received
- Adjusted basis of property received
- Applicable basis code section
- Realized gain (income) on property
- Recognized gain (income) on property
- Gain (income) deferred, if present
Transcribed Image Text:Your client, Cara Ramos, is forming a T-shirt business, Equitees, with three of her colleagues. Each has something to contribute to the business.
⚫ Cara is contributing property (land) that has a debt (mortgage) on it, encumbered property. She will receive a 30% stock of the company. It is
important to note, since the land still has a mortgage on it, the business will be assuming this existing mortgage.
⚫ Michael is contributing cash to the business and will receive a 30% stock.
⚫ Cathy is contributing property (machinery). The property, while without debt, has been used in her own previous business and has depreciated in
value over the years. Cathy will receive 30% equity in return for her contribution.
• Nate doesn't have anything to contribute, so he is going to perform services (managing the business) for the corporation. On the open market, his
services are worth approximately $50,000 a year. In return, he will not receive compensation but 10% equity instead.
The group's lawyer is advising them that their form of corporation should be a C Corporation, to best position themselves for potential future sale or for
a venture capital investor. The lawyer will handle the legal aspect of putting together the corporation, everything from creating bylaws to filings.
In total, the company needs about $500,000 to get the business off the ground.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education