Question

Seth, Pete, Cara, and Jen form Kingfisher Corporation with the following consideration:Consideration Transferred Basis to Transferor Fair Market Value Number of Shares IssuedFrom Seth—Inventory $30,000 $96,000 30*From Pete—Equipment ($30,000 of depreciation taken by Pete in prior years)45,000 99,000 30**From Cara—Proprietary process 15,000 90,000 30From Jen—Cash 30,000 30,000 10*Seth receives $6,000 in cash in addition to the 30 shares.**Pete receives $9,000 in cash in addition to the 30 shares.a. Seth’s recognized gain or loss. Identify the nature of any such gain or loss.b. Seth’s basis in the Kingfisher Corporation stock.c. Kingfisher Corporation’s basis in the inventory.d. Pete’s recognized gain or loss. Identify the nature of any such gain or loss.e. Pete’s basis in the Kingfisher Corporation stock.f. Kingfisher Corporation’s basis in the equipment.g. Cara’s recognized gain or loss.h. Cara’s basis in the Kingfisher Corporation stock.i. Kingfisher Corporation’s basis in the proprietary process.j. Jen’s recognized gain or loss.k. Jen’s basis in the Kingfisher stock.

Answer 1

Answer:

A. Ordinary gain of $6,000

B.$30,000

C. $36,000

D. $9,000

E. $45,000

F.$54,000

G. NO recognized gain or loss for Cara’s.

H. $15,000

I.$15,000

J. NO gain or loss on the transfer

K. $30,000

Explanation:

a. Based on the information given we were told that Seth’s receives the amount of $6,000 in cash in addition to the already 30 shares which means that Seth had ordinary gain of $6,000

b. Calculation for Seth’s basis in the Kingfisher Corporation stock

Using this formula

Seth’s basis= (Inventory basis+Gain Recognized)-Boot received

Let plug in the formula

Seth’s basis=($30,000 + $6,000)–$6,000

Seth’s basis=$36,000-$6,000

Seth’s basis=$30,000

c. Calculation for Kingfisher Corporation’s basis in the inventory

Using this formula

Kingfisher basis(Inventory)=Inventory basis+ Gain Recongnized

Let plug in the formula

Kingfisher basis(Inventory)=$30,000+$6,000

Kingfisher basis(Inventory)=$36,000

d.Pete’s recognized gain or loss will be the amount of $9,000 which is the amount of cash received

e. Calculation for Pete’s basis in the Kingfisher Corporation stock

Using this formula

Pete’s basis=(Equipment basis+ Gain recognized)- Boot received

Let plug in the formula

Pete’s basis=($45,000+$9,000)-$9,000

Pete’s basis=$54,000-$9,000

Pete’s basis=$45,000

f. Calculation for Kingfisher Corporation’s basis in the equipment

Using this formula

Kingfisher basis(Equipment)=Pete Equipment basis + Gain Recongnized by Pete

Let plug in the formula

Kingfisher basis(Equipment)=$45,000+$9,000

Kingfisher basis(Equipment)=$54,000

g. Based on the information given NO recognized gain or loss for Cara’s.

h. Based on the information given Cara will have a basis of the amount of $15,000 in the Kingfisher Corporation stock.

i. Based on the information given Kingfisher Corporation would as well has a basis of the amount of $15,000.

j.Jen’s has No recognized gain or loss on the transfer

k. Based on the information given Jen’s basis in the Kingfisher stock will be the amount of $30,000.