14) Colton, who owns 100% of Cormorant Corporation, transfers land having a $50,

Question

14) Colton, who owns 100% of Cormorant Corporation, transfers land having a $50,000 FMV and a $30,00 Cormorant common stock having a $40,000 FMV and Mallard Corporation common stock having a $10,000 FMV. The Mallard Corporation common stock, a capital asset, has a $2,500 basis on Cormorant's books. What is Colton's realized and recognized gain? Does Cormorant Corporation recognize a gain on the stock transfer to Colton? 0 adjusted basis to Cormorant. In return, Colton receives additional shares of

Explanation / Answer

(1) Colton has transferred assets transferred net assets of $ 20,000 i.e. $ 50,000 Land less $ 30,000 adjusted. In return Colton received assets of $ 50,000 in form of shares of Cormorant Corporation $ 40,000 and shares of Mallard Corporation $ 10,000. Hence, Colton's realized and recognised gain is $ 30,000.

(2) Cormorant has transferred common stock of shares of Mallard Corporation which had a book value of $ 2,500 for a FMV of $ 10,000. Hence, Cormorant needs to recognise gain on the stock of Mallard Corporation of $ 7,500.

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