Maria Has Been Operating a Business as a Sole Proprietorship

question 8

Essay

Maria has been operating a business as a sole proprietorship for several years. She needs additional capital and wants to incorporate her business. The assets of her business (building, land, inventory, and so on)have a $400,000 adjusted basis and a $1.5 million FMV. Maria is willing to exchange the assets for 1,500 shares of Metro Corporation stock, each having a $1,000 FMV. Bill and John are each willing to invest $500,000 in Maria's business and will each receive 500 shares of stock. Why is Sec. 351 important to Maria? Does it matter to Bill and John?

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Definitions:

Favorable Supply Shock

An unexpected event that increases the supply of a product or service, leading to lower prices and benefiting consumers.

Price Level

A measure of the average prices of goods and services in an economy.

Central Bank

A national bank that provides financial and banking services for its country's government and commercial banking system and implements monetary policy.

Money Supply

The whole sum of economic financial assets at a specified time.