|
|
|
 Topic: Becker Simulation Question ( Topic Closed)
|
 
|
| Author |
|
akh89
Newbie
Joined: 10 Feb 2012
Online Status: Offline
Posts: 4
|
| Posted: 10 Feb 2012 at 13:12 | IP Logged
|
|
|
Hey everyone,
I had to sign up for CPAnet just because of this one question, I just am failing to see where the answer is coming from. The information that pertains to my question is as follows:
Mitchell contributes property and cash to form a corporation.
FMV of property contributed: $80,000
Liability associated with the property: $50,000
Mitchell's basis in property: $40,000
Cash contributed: $20,000
So I get that his realized gain is $40,000 ($80,000-$40,000) and his recognized gain is $10,000 (liability assumed by corp. exceeds basis by $10,000). What I don't get is the corporation's basis for the property received. I have calculated that the corporation's basis in the property would be $50,000. I am basing this off of R3 in Becker where it says the general rule is the corporation's basis is the greater of:
a) Adjusted basis of transeror (plus any gain recognized by transferor)
or
b) Debt assumed by the corporation.
Well for a) I get $50,000 ($40,000+$10,000) and for b) I get $50,000. That gets me to my answer of $50,000. The Becker simulation says the basis for the corporation is $40,000 since that was Mitchell's basis. What?
Any help would be greatly appreciated.
|
| Back to Top |
|
| |
CPA#1
Major Contributor
Joined: 01 Dec 2009
Online Status: Offline
Posts: 439
|
| Posted: 10 Feb 2012 at 14:12 | IP Logged
|
|
|
He also contributed cash of $20,000. The liability does not exceed the $60,000 (40k for property and 20k for cash). Thus, no gain is recognized. So, the basis of Mitchell's property is the basis that the Corporation will use.
__________________
FAR: 52,66,73,61,89
AUD: 47,87
BEC: 80
REG: 64,74,84
DONE!!!!!!!
|
| Back to Top |
|
| |
akh89
Newbie
Joined: 10 Feb 2012
Online Status: Offline
Posts: 4
|
| Posted: 10 Feb 2012 at 14:30 | IP Logged
|
|
|
Ah, that makes sense. I always thought that you would account for the cash and the property separately when assigning basis to the corporation. So, if I understand correctly, he would not recognize a gain at all? In order to recognize a gain, the liability would have to be greater than $60,000 ($40,000 NBV + $20,000 cash), correct? And if that were the case, I'm assuming the corporation's basis would be the value of that liability over $60,000.
I had never seen a problem like that before. I stared at it and my book for about 30 minutes trying to figure it out. Thank you so much for your help.
|
| Back to Top |
|
| |
CPA#1
Major Contributor
Joined: 01 Dec 2009
Online Status: Offline
Posts: 439
|
| Posted: 10 Feb 2012 at 14:57 | IP Logged
|
|
|
Yes, the corporation would have a basis of $40,000 for the property and $20,000 for the cash.
The liabilities assumed must exceed then TOTAL basis of the property contributed in order for a gain to recognize. Property is considered to be anything other than services. So, cash is included as "property."
__________________
FAR: 52,66,73,61,89
AUD: 47,87
BEC: 80
REG: 64,74,84
DONE!!!!!!!
|
| Back to Top |
|
| |
|
|
Sorry, you can NOT post a reply.
This topic is closed.
|
|
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot delete your posts in this forum
You cannot edit your posts in this forum
You cannot create polls in this forum
You cannot vote in polls in this forum
|
 Copyright ©2001-2010 Web Wiz Guide
This page was generated in 0.0938 seconds.
|
Active Topics 
Memberlist 
Search 
Help
Register 
Login
