Chapter 2 Comprehensive Example

Harry, Terry, Mary, and Larry decided to form the HTML corporation.  Presented in the table below are the properties transferred by Harry, Terry, Mary, and Larry and received by HTML.  You may assume that each contributor will own an equal share of the new corporation after the transfer.

HTML Corporation

Shareholder

FMV of Property other than Cash

Liability Associated with Property Transferred

Basis to Shareholder of Property Transferred

Cash Contribution in Addition to Property Contributed

Boot Received
Harry 110,000 10,000 40,000 20,000 0
Terry 130,000 80,000 80,000 70,000 0
Mary 160,000 30,000 145,000 0 10,000
Larry 150,000 70,000 30,000 40,000 0

Required:

Complete the following questions.

  1. What is the gain recognized by Larry?
  2. What is the basis of the property contributed by Harry to the Corporation?
  3. What is the gain recognized by Mary?
  4. What is the basis that Mary has in her shares?
  5. What is the basis that Larry has in his shares?
  6. What is the tax basis of Total Assets for HTML?
  7. What is Terry's basis in his shares?
  8. What is the book value of each shareholder's shares?
  9. Create a balance sheet indicating the financial and tax attributes of the new corporation.