1. Elwood Emerson transferred a building having a fair market value of $200,000 and an adjusted basis of $1215,000 to his controlled corporation. In return Elwood received common stock worth $80,000, a 10-year debenture worth $20,000, a two-year note worth $10,000, $5,000 cash and the corporation assumed the mortgage of $85,000 on the building.
a. How much gain is realized by Elwood?
b. How much (and what type) gain is recognized by Elwood?
c. What is the corporation's basis for the building?
d. What is Elwood's basis for the note, debenture, and stock received.
2. Norman Nager transfers assets to a corporation that is wholly owned by him. In exchange for the assets, Norman received short-term notes with a fair market value of $64,000 and stock with a fair market value of $136,000. The assets transferred to the corporation are as follows:
Asset Adjusted Basis at Transfer Depreciation Recapture Potential Fair Market Value at Transfer Land (Sec. 1231 asset) $50,000 $0 $25,000 Building (Sec. 1231 asset) 50,000 15,000 75,000 Machinery 30,000 25,000 25,000 Inventory 70,000 9 75,000 $200,000 $40,000 $200,000
a. How much (and what type) gain will Norman recognize on the transfer?
b. What is Norman's basis int eh corporate stock and short term notes received?
c. What is the corporation's basis in each asset it receives?