[mitchmatch]

Hi Can someone please explain the answer to me, would be greatly appreciated.

Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows:

Lind: Building – Adjusted basis: $40,000 FMV: $82,000 Percent Acquired: 60%

Post: Land – Adjusted basis: $5,000, FMV: $48,000, Percent Acquired: 40%

The building was subject to a $10,000 mortgage that was assumed by Ace. What was Ace’s basis in the building?

a. $82,000

b. $30,000

c. $72,000

d. $40,000

Explanation

Choice “d” is correct. Ace’s basis in the building is the same as Lind’s basis immediately prior to its contribution to the corporation.

Choice “b” is incorrect. Ace’s basis in the building is computed separately from any debt that it assumes related to the building.

Choice “c” is incorrect. Ace uses Lind’s basis, not the building’s fair market value, as its basis. Furthermore, the debt assumed by Ace does not affect the basis of the building to Ace.

Choice “a” is incorrect. Ace uses Lind’s basis, not the building’s fair market value, as its basis.

I figured the basis to Ace corp would be $40,000 plus the liability of mortgage which would equal $50,000?

Can some explain what im doing wrong?

FAR-76 First attempt.
AUD-79 First attempt.
REG-79 First attempt.
BEC-79 First attempt.

Done!

BECKERS