Introduction: Ted decides to incorporate his medical practice. He uses the cash method All the current liabilities will be deductible by Ted if he pays them. All the current liabilities would be deductible by Ted if he paid them. Ted transfers all assets and liabilities to a professional corporation in exchange for all of its stock.
A) What are the amount and character of Ted's recognized gain or loss?
B) What is Ted's basis in the stock?
C) What is the corporation's basis in the property?
D) Who recognized income on the receivables upon their collection? Can the corporation obtain a deduction for the liabilities when it pays them?
| Cash |
$5,000 |
$5,000 |
|
| A/R |
$0 |
$65,000 |
|
| Equip. (net of $15,000 depreciation) |
$35,000 |
$40,000 |
|
| Total |
$40,000 |
$110,000 |
|
| Liabilites and Owner's Equity |
|
|
|
| Current liabilities |
$0 |
$35,000 |
|
| Note payable on equip. |
$15,000 |
$15,000 |
|
| Owner's equity |
$25,000 |
$60,000 |
|
| Total |
$40,000 |
$110,000 |
|
|
|
|
|