Michael transfers the following assets to Peach Corporation in exchange for all of its stock. (Assume that neither Michael nor Peach plans to make any special tax elections at the time of incorporation.)
|
Assets |
Michael’s |
Fair Market |
|
Inventory |
$ 85,000 |
$100,000 |
|
Equipment |
160,000 |
120,000 |
|
Trucks |
150,000 |
130,000 |
a. What is Michael’s recognized gain or loss?
b. What is Michael’s basis in the stock?
c. What is Peach’s basis in the inventory, equipment, and trucks?
d. If Michael has no intentions of selling his Peach stock for at least 15 years, what action would you recommend that Michael and Peach Corporation consider? How does this change the previous answers?