Assignment
I. Darnell owns all 100 shares of Think Tank, Inc. He is looking toward retirement and decides to bring his two children, Annabelle and Brendan, into the business. Annabelle contributes equipment worth $10,000 (adjusted basis of $7,000) in exchange for 50 shares of the corporation. Brendan contributes $10,000 cash in exchange for 50 shares of the corporation.
• Is this a Section 351 qualified transaction?
• What is Annabelle's realized gain (loss)?
• What is Annabelle's recognized gain (loss)?
• If Darnell contributes $1,000 in exchange 5 additional shares of stock will the transaction qualify under Section 351?
• If Darnell contributes $3,000 in exchange for 15 additional shares of stock will the transaction qualify?
II. Binita is operating a sole proprietorship and decides to incorporate. She will transfer the assets shown below to the corporation in exchange for 70% of the stock. Her friend Lionel will join her in business. He will provide $60,000 of legal services in exchange for 30% of the stock and $30,000 cash.
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Binita's Assets
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FMV
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Cost
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Accumulated Depreciation
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Inventory
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$25,000
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$18,000
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Delivery van (long-term)
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$45,000
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$60,000
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$36,000
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• Is this a Section 351 qualified transaction?
• How much, if any, recognized gain (loss) does Binita have? What is the character?
o Inventory (amount) __________ Character_________________
o Van (amount) _______________ Character_________________
• How much, if any, recognized gain (loss) does Lionel have? What is the character?
o Services (amount)____________ Character ________________
• How much, if any, recognized gain (loss) does the corporation have?
• What is Binita's basis in her stock? When does her holding period start?
• What is Lionel's basis in his stock? When does his holding period begin?
• What is the corporation's basis in each asset? When does the holding period begin?
o Basis-inventory_____________ Holding period-inventory_________
o Basis-van __________________ Holding period-van______________
• If Lionel had contributed land held for investment worth $60,000 (basis $10,000) rather than services in exchange for 30% of the stock and $30,000, how would this change each of the questions above?
o Section 351 qualified?________________
o Gain recognized:
- Binita? _____________________
- Lionel? _____________________
- Corporation?_________________
o Basis and holding period of stock for shareholders:
- Binita'sbasis?__________ Binita's holding period?__________
- Lionel's basis?__________ Lionel's holding period?__________
o Basis and holding period of property for corporation:
- Basis in inventory?______ Holding period inventory?________
- Basis in van? ___________ Holding period van?_____________
- Basis in land?__________ Holding period land?_____________
Format your assignment according to the give formatting requirements:
• The answer must be using Times New Roman font (size 12), double spaced, typed, with one-inch margins on all sides.
• The response also includes a cover page containing the student's name, the title of the assignment, the course title, and the date. The cover page is not included in the required page length.
• Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.