\"Rafael transfers the following assets to Crane Corporation in exchange for all
ID: 2471768 • Letter: #
Question
"Rafael transfers the following assets to Crane Corporation in exchange for all of its stock. (Assume that neither Rafael nor Crane plans to make any special tax elections at the time of incorporation.)
Assets: Rafael's Adjusted Basis Fair Market Value
Inventory $60,000 $100,000
Equipment $150,000 $105,000
Shelving $ 80,000 $ 65,000
a. What is Rafael’s recognized gain or loss?
b. What is Rafael’s basis in the stock?
c. What is Crane’s basis in the inventory, equipment, and shelving?
d. If Rafael has no intentions of selling his Crane stock for at least 15 years, what action would you recommend that Rafael and Crane Corporation consider? How does this change the previous answers?
Explanation / Answer
a. What is Rafael’s recognized gain or loss?
Rafael would not have a gain or loss.351 is mandatory if the provisions are met. He will have control of the company after theexchange and property is given in exchange for stock.
b. What is Rafael’s basis in the stock?
(60000+150000+80000)=$290000
c. What is Crane’s basis in the inventory, equipment, and shelving?
$290,000
d. If Rafael has no intentions of selling his Crane stock for at least 15 years, what action would you recommend that Rafael and Crane Corporation consider? How does this change the previous answers?
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