[unccgal07]

Hi Guys-

I am a little confused about a simulation that I am doing through Gleim and hope someone can help.
Here is the scenerio:

On September 30, 2009, Kim received from Sing, Inc. 250 shares of Sing, Inc. treasury stock and $25,000 in cash in exchange for an office building. Sing, Inc. had redeemed the stock from Greg (exsisting shareholder) on October 31, 2007, for $250,000. The stock has a $100 per share par value and had an FMV of $350,000 on September 30, 2009. The FMV of the office building was $500,000, and Kim’s adjusted basis in it was $275,000. The building was subject to a $125,000 mortgage, and there was $25,000 of Sec. 1250 recapture inherent in the property. The exchange was for a valid business purpose and not to avoid taxes. Kim had acquired the property on October 31, 1997.

The question then asks the following:

1. What is the basis of the property to the Corporation- the answer is the FMV at 500K- I do not understand why it would be this amount instead of the greater of the NBV or the mortgage assumed

2. What is the gain that Kim records- the answer states that she uses the FMV of the stock received- again I am not sure why the FMV is being used and not the NBV less the mortgage

Can anyone help- I am so utterly confused!

Thanks!