A transfers property to corporation X in exchange for all of its stock (value $15,000) and...

A transfers property to corporation X in exchange for all of its stock (value $15,000) and $15,000 in boot. The property transferred by A consists of inventory (basis of $7,000 and fair value of $20,000) and land (basis of $13,000 and fair value of $10,000). All answers should be entered as positive numbers (do not include negative signs or parenthesis). A recognizes a $ 15000 gain on the transaction. A assumes a basis of $ 15000 in the stock received and a basis of $ 15000 in the boot received. A realizes a $ 13000 gain on the inventory and a $ 3000 loss on the land. A must recognize a $ 0 gain on the inventory and a $ 0 loss on the land.

Can you check my work? I am unsure if the boot changes what is recognized for the gain and loss of the inventory and land.

Solutions

Expert Solution

Answer :

$ 13,000 gain on sale
$ 15,000 stocks (at fair value); $ 15,000 boot (cash received)
$ 13,000 gain on inventory; $ (3,000) loss on land

Explanation :

1) $ 13,000 gain

Consideration (15k+15k)....$ 30,000

Inventory (LCNRV)....................(7,000)

Land...............................................(10,000)

GAIN............................................$ 13,000

NOTE:

Inventory should be measured at 'lower of cost and NRV' (LCNRV)- $7,000 is lower than $20,000

Since Land's carrying value is greater than its recoverable amount, it is considered 'impaired' and should be written-down to its fair value of $ 10,000.

2) $15,000 stocks and $15,000 boot

Stocks- use fair value of stocks as a basis

Boot- use amount of cash received as a basis

3) $13,000 gain on inventory and $(3,000) loss on land

Allocate consideration of $30,000 based on 'fair value' of inventory and land. Allocated price is $20,000 (30k*(20/30)) for inventory and $10,000 (30k*(10/30)) for land.

Inventory: $20,000 - $7,000= $13,000 gain which represents the Total Gain on Sale of properties

Land: $10,000 - $13,000= $(3,000) loss which represents the amount of Impairment Loss on land

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ekkarill92 answered 11 months ago

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