Emma and Liam form Majestic Corporation. Emma transfers equipment worth $475,000 (basis of $100,000) and cash of $25,000 to Majestic Corporation for 50% of its stock. Liam transfers a building and land worth $525,000 (basis of $200,000) for 50% of Majestic's stock and $25,000 cash. Discuss the result of these transfers. (a) Emma recognizes a gain of $375,000; Liam recognizes a gain of $325,000. (b) Emma recognizes a gain of $25,000; Liam recognizes no gain. (c) Neither Emma nor Liam recognizes gain. (d) Emma recognizes no gain; Liam recognizes a gain of $25,000. (e) None of the above
Emma and Liam form Majestic Corporation. Emma transfers equipment worth $475,000 (basis of $100,000) and cash of $25,000 to Majestic Corporation for 50% of its stock. Liam transfers a building and land worth $525,000 (basis of $200,000) for 50% of Majestic's stock and $25,000 cash. Discuss the result of these transfers. (a) Emma recognizes a gain of $375,000; Liam recognizes a gain of $325,000. (b) Emma recognizes a gain of $25,000; Liam recognizes no gain. (c) Neither Emma nor Liam recognizes gain. (d) Emma recognizes no gain; Liam recognizes a gain of $25,000. (e) None of the above
Chapter18: Corporations: Organization And Capital Structure
Section: Chapter Questions
Problem 31P
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Emma and Liam form Majestic Corporation. Emma transfers equipment worth $475,000 (basis of $100,000) and cash of $25,000 to Majestic Corporation for 50% of its stock. Liam transfers a building and land worth $525,000 (basis of $200,000) for 50% of Majestic's stock and $25,000 cash. Discuss the result of these transfers.
(a) Emma recognizes a gain of $375,000; Liam recognizes a gain of $325,000.
(b) Emma recognizes a gain of $25,000; Liam recognizes no gain.
(c) Neither Emma nor Liam recognizes gain.
(d) Emma recognizes no gain; Liam recognizes a gain of $25,000.
(e) None of the above
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