On 1/1/2013, Shareholder A & B incorporated ACME by transferring cash, a building, and land to the corporation in return for 100 percent of the corporations stock. The property transferred to the corporation had the following fair market value and adjusted basis. Each shareholder was issued 100 shares of $10 par value stock.
The fair market value of the corporations stock received in the exchange equaled the fair market value of the assets transferred to the corporation by the shareholders. The transaction met the requirements to be tax-deferred under §351.
The Building has never been depreciated and has a mortgage attached to it in the amount of $50,0000 (considered to be business purpose debt). ACME Inc. will assume the mortgage. Shareholder A also received $25,000 in boot in the transaction.
Liability par value $10
Item Fair Value Adjusted Basis Boot Rec’d Book Value # shares issued
Shareholder B Cash $300,000 $300,000 $275,000 100
Shareholder A Building $300,000 $110,000 $25,000 $300,000 100
Shareholder A Mortgage $(50,000) $(50,000)
Shareholder A Land $75,000 $60,000 $- $75,000
Total $625,000 $470,000 $25,000 $600,000 200
(FMV of stock issued)
Create the journal entry to record this event.
Calculate shareholder gain realized and if necessary, recognized for the transaction.
gain realized gain recognized
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