Question

Leona transferred a building (Adjusted Basis of $200,000 and Fair Market Value of $30,000) to Riggins Corporation. In return, Leona received eighty percent (80%) of Riggins Corporation’s stock (Fair Market Value $5000). There was an outstanding mortgage of $225,000 on the building which Riggins Corporation assumed. Which of the following is correct?

1. Leona will have a Recognized Gain on the transfer of $25,000
2. Leona will have no Recognized Gain or Recognized Loss on the transfer
3. Riggins Corporation will have a basis in the building transferred by Leona of $200,000
4. Leona will have a Recognized Loss on the transfer of $170,000

Answer 1

Here commonstock value is not given.on the basis of question

Answer:

$25000

Explanation:

Calculation for Leona’s recognized gain

First step is to calculate the Consideration amount received by Leona

Consideration received by Leona=225000

Second step is less the adjusted basis to the Consideration received by Leona’s in order to know the gain

Consideration received by Leona’s =225000

Less Adjusted basis =200000

Gain =25000

Therefore Leona’s recognized gain is $25000