ACCT 730 – Week 2 Problem Set
$6,000 ordinary gain.
$30,000 [$30,000 (basis of inventory) + $6,000 (gain recognized) – $6,000 (boot
$36,000 [$30,000 (basis of inventory) + $6,000 (gain recognized)].
Carl recognizes gain of $9,000 (the amount of cash received). The gain is
ordinary income because of the § 1245 depreciation recapture provisions.
Carl has a basis of $45,000 in the Pine Corporation stock, computed as follows:
$45,000 (basis in the equipment) + $9,000 (gain recognized) – $9,000 (boot
Pine Corporation has a basis of $54,000 in the equipment, computed as follows:
$45,000 (basis of the equipment to Carl) + $9,000 (gain recognized by Carl).
Lucy has no recognized gain or loss. A secret process is property for purposes of
Lucy has a basis of $15,000 in the Pine Corporation stock.
Pine Corporation has a basis of $15,000 in the secret process.
Sylvia has no gain or loss on the transfer.
Sylvia has a basis of $30,000 in the Pine Corporation stock.
pp. 4-3 to 4-12 and Figures 4.1 and 4.2
$125,000 (basis in the equipment) and $10,000 (basis in the patent).
The answers would not change. There is no requirement that the transferors
receive the same type of stock. Further, both common stock and most preferred
stock qualify as ‘‘stock.” However, if Gail received “nonqualified preferred
stock,” her realized gain would be recognized because this type of preferred stock
is treated as boot.