Question

Fill in the blanks using the Answer key below.

Apple, Bob, Chip, and Dan transfer property to Pen corporation in exchange for 100% of its stock. Each receives 25% of its shares as a result. Apple transfers land with a basis of $25,000 and a fair value of $20,000. Bob transfers equipment with a basis of $5,000 and a fair value of $20,000 (prior depreciation of $15,000 was taken). Chip transfers $20,000 in cash. Dan transfers a $20,000 (face value and amount) installment note that he had received in exchange for a capital asset in which Dan had a $2,000 basis.

1. Apple realizes a -blank- and recognizes a -blank-.
2. Bob realizes a -blank- and recognizes B realizes a -blank- of it under Section 1245 due the prior depreciation.
3. The transfer of money by Chip -blank- the exchange from qualifying under Section 351(a) because money -blank- considered property for this purpose.
4. Dan realizes a  -blank- gain -blank-recognize it. This hinges on whether Section 453B(a) applies, noting it generally requires the recognition of any gain realized upon the disposition of an installment obligation.
5. If Apple sells his stock in Pen corporation for $20,000, then Apple will recognize either a $5,000 loss or a $0 loss depending on whether an election under Section   -blank- is made.
6. Pen corporation assumes a -blank- basis in the land absent an election to instead assume a -blank-. Pen corporation also assumes a -blank- basis in the equipment and a  -blank- basis in the installment obligation.

Answer Key

$5,000 loss

$0 loss

$5,000 gain

$15,000 gain

none

all

prevents

does not prevent

is

is not

$18,000

$0

and has to

but does not have to

351(a)

362(e)(2)(A)

358(a)

$20,000

$25,000

$5,000

$2,500

$2,000

Answer 1

Fill in the Blanks

1) Apple realizes $25000 and recognizes $5000 gain.

2) Bob Realises $5000 and recognizes none under section 1245 due the prior depreciation, As the depreciation has to be calculated and deducted at the time of transefer to recognises profit or loss on account of transfer. there is no profit or loss in this case.

3) The transfer of money by chip doesnot prevent the exchange from qualifying under section 351(a) because money $20000 considered property for this purpose.

4) Dan realises $20000 and gain $18000 recognise it. this hinges on whether section 453B(a) applies, nothing it generally requires the recognition of any gain realised uponthe disposition of installment obligation.

If apple sells his stock in pen corporation for $20000 , then apple will recognise either $5000 loss or $0 loss depending on whether an election under section 362(e)(2)(A) is made.

pen corporation assumes and has interest in the land absent an election to instead assume and has interest, pen corporation also assumes and has interest  in the equipment and has interest in the installment obligation As it has ownership in the above mentioned assets as it was transerred to it for a consideration. ie All Basis.

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