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When selling property, plant, and equipment for cash:

A. The seller recognizes a gain or loss for the difference between the cash received and the fair value of the asset sold.

B. The seller recognizes a gain or loss for the difference between the cash received and the book value of the asset sold.

C. None of the above.

D. The seller recognizes losses, but not gains.

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Egie Boy Cauba
Egie Boy CaubaLv5
3 Feb 2021
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Related questions

Jesse and Karla form a “50/50” partnership. Jesse contributes property FMV of $40,000 9basis of $20,000). Karla contributes $40,000 in cash. The property is later sold for $30,000. If the partnership uses the traditional method of allocation, how much gain does each partner recognize for both book and tax purposes?

A.

Jesse recognizes a $10,000 gain for tax purposes and also a $10,000 gain for book purposes because the adjustment for book purposes cannot be less than the amount for tax purposes. Karla recognizes no gain or loss for book or tax purposes.
B.

Both recognize a gain of $5,000 for tax purposes and a loss of $5,000 for book purposes because it is an equal “50/50” partnership.
C.

Jesse recognizes a $10,000 gain for tax purposes and a $10,000 loss for book purposes because the adjustment for book purposes must be made so as to set his basis in the partnership interest equal to his capital account balance. Karla recognizes no gain or loss for book or tax purposes.
D.

Jesse recognizes a $10,000 gain for tax purposes and a $5,000 loss for book purposes resulting in a disparity between his basis in the partnership and his capital account balance. Karla recognizes no gain or loss for tax purposes and a $5,000 loss for book purposes, also resulting in a $5,000 disparity between her basis in the partnership interest and her capital account balance.

At the beginning of year 1, Bill and Cindy form an S-corp andare equal shareholders, each gave $5,000 in exchange for stock.Cindy loaned the corp another $5,000 on June 30th of year. Thecorporation had an ordinary loss in its first year of $12,000 andordinary income in its second year of $15,000. Assume that allparties use a calendar based taxable year and that neither thepassive nor at-risk limitations are applicable. If theS-corporation also made a $12,000 distribution on Oct 30th of year1 (split equally between the shareholders as generally required bythe one-class of stock rule), then what are the tax impacts of thedistribution?

A. Both will recognize a short-term capital gain of $1,000 on thedistribution and each of their bases in the S-corporation’s stockis reduced to $0. Bill may not deduct any of the first year losswhile Cindy may deduct $5,000 of it.

B. Bill recognizes a short-term capital gain of $1,000 on thedistribution, his basis in stock is reduced to $0, and he cannotrecognize any of the first year loss. Cindy recognizes no gain onthe distribution, which reduces her basis in stock to $0 and herbasis in debt to $4,000. She may then deduct $4,000 of the firstyear loss, which reduces her debt basis to $0.

C. Bill recognizes $5,000 of the first year loss, which reduces hisbasis to $0. He then recognizes a $6,000 short-term capital gain onthe distribution. Cindy recognizes $6,000 of the first year loss,which reduces her stock basis to $0 and her debt basis to $4,000.She then recognizes a $2,000 capital gain on the distribution inexcess of her debt basis.

D. Bill recognizes $5,000 of the first year loss, which reduces hisbasis to $0. He then recognizes a $6,000 short-term capital gain onthe distribution. Cindyl recognizes $6,000 of the first year loss,which reduces her stock basis to $0 and her debt basis to $4,000.She then recognizes a $6,000 capital gain on the distribution,because debt basis cannot be reduced for distributions with respectto the stock of the S-corporation.

Problem 18-31 (Algorithmic) (LO. 1, 3 )

Ann and Bob form Robin Corporation. Ann transfers property worth $315,000 (basis of $110,250) for 70 shares in Robin Corporation. Bob receives 30 shares for property worth $126,000 (basis of $25,200) and for legal services (worth $12,600) in organizing the corporation.

If there is no gain or loss, enter "0" for the amount.

a. What gain or income, if any, will the parties recognize on the transfer?

Ann recognizes of $______________. Bob recognizes of $______________.

b. What basis do Ann and Bob have in the Robin Corporation stock?

Ann has a basis of $_________, while Bob has a basis of $ in the stock.

c. What is Robin Corporation's basis in the property and services it received from Ann and Bob?

Robin Corporation has a basis of $____________ in the property Ann transferred and a basis of $____________ in the property Bob transferred.

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