review_ex_3_fall_2011 - (2) Original cost $125,000,...

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TAX 5015 (Fall 2011) – Chapter Review Exercise #3 Topic review: Corporate Formation Due date: September 15, 2011 Name(s): On September 15, 2011, Robert, Larry, Kevin, Danny and Dennis contribute the following assets to form the Celtic Corporation: Transferor Property Transferred to Corporation Stock/assets received by shareholder basis fair value Robert Land 1 45,000 75,000 Stock (fair value) – 100,000 Building 1 112,500 2 250,000 Mortgage (225,000) (225,000) Note: The mortgage associated with the property was assumed by Celtic. Larry Equipment 3 85,000 125,000 Stock (fair value) – 100,000 Note (fair value) – 25,000 Kevin Truck 4 50,000 35,000 Stock (fair value) – 30,000 C a s h 5 , 0 0 0 Danny Machinery 5 26,875 30,000 Stock (fair value) – 31,250 Cash 1,250 Dennis Services 35,000 Stock (fair value) – 50,000 Cash 15,000 Note: Dennis’ exchange involved legal services for organizing the Celtic Corporation. Notes: (1) Both assets were held by Robert for investment purposes & held for more than one year.
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Unformatted text preview: (2) Original cost $125,000, depreciated using MACRS (39-year property). (3) Original cost $150,000, depreciated using MACRS (7-year property). (4) Original cost $75,000, depreciated using MACRS (5-year property). (5) Original cost $50,000, depreciated using MACRS (7-year property). Required: (a) Does Sec. 351 apply to this corporate formation? Explain why or why not. (b) For each shareholder: (1) compute their realized gain or loss (2) compute their recognized gain or loss (if any) (3) determine the character of the gain or loss (4) compute the basis for the stock received from the corporation (5) determine when the holding period begins for the stock (c) Prepare Celtics tax-basis balance sheet as of September 15, 2011 (assets = liabilities + equity). (d) How does Celtic Corporation treat the services provided by Dennis?...
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This note was uploaded on 09/09/2011 for the course TAX 5015 taught by Professor Kelliher,c during the Spring '08 term at University of Central Florida.

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