Introduction: Ted decides to incorporate his medical practice. He uses the cash
ID: 2624181 • Letter: I
Question
Introduction: Ted decides to incorporate his medical practice. He uses the cash method All the current liabilities will be deductible by Ted if he pays them. All the current liabilities would be deductible by Ted if he paid them. Ted transfers all assets and liabilities to a professional corporation in exchange for all of its stock.
A) What are the amount and character of Ted's recognized gain or loss?
B) What is Ted's basis in the stock?
C) What is the corporation's basis in the property?
D) Who recognized income on the receivables upon their collection? Can the corporation obtain a deduction for the liabilities when it pays them?
Cash $5,000 $5,000 A/R $0 $65,000 Equip. (net of $15,000 depreciation) $35,000 $40,000 Total $40,000 $110,000 Liabilites and Owner's Equity Current liabilities $0 $35,000 Note payable on equip. $15,000 $15,000 Owner's equity $25,000 $60,000 Total $40,000 $110,000Explanation / Answer
Incorporating a Cash Basis Proprietorship:
Ted decides to incorporate his medical practice. He uses the cash method of accounting. On the date of incorporation, the practice reports the following balance sheet: (attached document)
All the current liabilities would be deductible by Ted if he paid them. Ted transfers all assets and liabilities to a professional corporation in exchange for all of its stock.
A) What are the amount and character of Ted's recognized gain or loss?
Ted Realizes a gain of $70,000 [$65,000 + $35,000 + $15,000]
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