- This topic has 40 replies, 3 voices, and was last updated 11 years, 4 months ago by
.
-
Topic
-
I have a few questions on Becker simulation.
Jones, Mitchell, Carey, and Gorman are knowledgeable about landscape design. They have decided to pool their knowledge and resources to form Arrington Enterprises, Inc., a C corporation. They will provide professional services to area businesses and homeowners. All participants expect to work full time for Arrington Enterprises, and each expects to contribute sufficient assets to become a 25% shareholder with a total stock equity of $50,000 each.
In addition to the skills that each brings to the new entity, the owners will contribute assets that will enhance the company’s ability to provide quality technical design and planning services. These assets include a building, land, lawn care equipment, office furniture and equipment, and cash for initial operating expenses.
The table below shows the assets contributed by each shareholder. In all cases, the liabilities are recourse and are assumed by Arrington Enterprises, Inc. There are no tax avoidance purposes inherent in the assumption of shareholder liabilities.
Shareholder contributions to Arrington Enterprises.Inc
Jones $120,000 $60,000 $100,000 $0 $10,000
Mitchell $ 80,000 $50,000 $40,000 $20,000 $0
Carey $40,000 $20,000 $20,000 $30,000 $0
Gorman $70,000 $0 $50,000 $0 $20,000
*the first number: Noncash property contributed (FMV)
the second number: Liability associated with property
the third number: Basis in noncash property contributed
the fourth number: Cash contributed
the fifth number: Cash distributed to shareholder
So the first question is
What is Jones’ tax basis in shares?
The answer is $40,000.
But here is what I think.
Jones contributed $100,000 basis in property with haas $ 600,000 liability attached to it
so his basis is $40,000 ( this is how Becker got their answer). However, the corporation distributed $10,000.
His basis should be $30,000 since he received boot when contributing the property.
My second question is
What is corporation tax basis for assets that Mitchell and Carey transferred in.
.
So for Mitchell, even though the liability assumed by corporation was greater than the basis of Mitchell’s property,
she also contributed cash of $20,000, which makes the corporation basis of $60,000. but the answer is $40,000
Also for Carey, the basis of Carey’s property was $20,000 and the cash contributed was $30,000. I believe the tax basis of the corporation should be $50,000. but the answer is $20,000
For both Mitchell and Carey, the corporation did not take the cash contributed by Mitchell and Carey into the answer.
I know it is a very long question. Please someone help me out..I thought I was pretty much ready but this is killing
my confidence!!
- The topic ‘Becker simulation R3 question. please HELP!’ is closed to new replies.
