Joe and Kay form Gull Corporation. Joe transfers property with a basis of $200,0

Question

Joe and Kay form Gull Corporation. Joe transfers property with a basis of $200,000 and a fair market value of $250,000 for 200 shares in Gull Corporation. Kay transfers property with a basis of $50,000 and fair market value of $240,000. She agrees to accept 200 shares in Gull Corporation for the property and for providing bookkeeping services to the corporation in its first year of operation. The value of Kay's services is $10,000. With respect to the transfer:

a. Neither Joe nor Kay recognizes gain or income on the exchange

b. Kay has a recognized income of $10,000

c. Kay has a recognized income of $20,000

d. Joe has a recognized gain of $50,000 and Kay has a recognized gain of $190,000

Explanation / Answer

The answer for the above is

d) Joe has a recognized gain of $50,000 and Kay has a recognized gain of $190,000

As the Joe had sold the property for the value of 250000 which basic is 200000, which means the

=(250000-200000) 50000 is the gain for Joe and

In the hands of Kay, he sold a property of value 50000 for the exchange of shares of 240000 value of Gull Corporations the difference of (240000-50000) 190000 gain for Kay.

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