Reba, a Cash Basis Accountant, Transfers All of the Assets

question 49

Essay

Reba, a cash basis accountant, transfers all of the assets and liabilities of her practice to Able Corporation in exchange for all of Able Corporation's stock. The assets include $20,000 of accounts receivable. What is the Corporation's basis in the receivables? Will the corporation be taxed on the receivables, as they are collected?

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Definitions:

Law Firm

A business entity formed by one or more lawyers to engage in the practice of law.

Tender

An offer to perform an obligation or a formal offer, especially in the context of a bid for a project or to fulfill contractual requirements.

Performance

The act of fulfilling the terms of a contract, agreement, or obligation.

Contractual Obligations

are responsibilities or duties that are legally binding and arise from agreements or contracts entered into by parties.