At the Beginning of the Year, Harold, Missy, and Ranae

question 122

Essay

At the beginning of the year, Harold, Missy, and Ranae formed HMR Corporation as an S corporation. For one-third of the HMR stock, Harold contributed $50,000 cash and land with a fair market value of $75,000 and adjusted tax basis of $60,000. The land was subject to a $45,000 mortgage, which was assumed by HMR on the formation. Missy and Ranae each contributed $80,000 cash to HMR for one-third of the HMR stock. What is Harold's basis in the HMR stock after the formation? What is Missy's basis in her HMR stock after the formation?

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Definitions:

Purchase Returns

Transactions where buyers return previously purchased merchandise to the seller, often because of defects or errors in the shipment.

Returns

The process of a customer returning previously purchased merchandise back to the seller, or the amount of profit generated from an investment.

Gross Margin Ratio

A financial indicator that calculates the disparity between sales and the cost of goods sold, represented as a portion of sales revenue.

Net Sales

The total revenue from sales reduced by returns, allowances for damaged or missing goods, and discounts.