This Year,John,Meg,and Karen Form Frost Corporation

question 3

Essay

This year,John,Meg,and Karen form Frost Corporation.John contributes land purchased as an investment four years ago for $15,000 that has a $30,000 FMV in exchange for 30 shares of Frost stock.Meg contributes machinery purchased four years ago and used in her business having a $35,000 adjusted basis and a $30,000 FMV in exchange for 30 shares of Frost stock.Karen contributes services worth $20,000 in exchange for 20 shares of Frost stock.
a)What is the amount of John's recognized gain or loss?
b)What is John's basis in his Frost shares? When does his holding period begin?
c)What is the amount of Meg's recognized gain or loss?
d)What is Meg's basis in her Frost shares? When does her holding period begin?
e)How much income,if any,must Karen recognize?
f)What is Karen's basis in her Frost shares? When does her holding period begin?
g)What is Frost Corporation's basis in the land and the machinery? When does its holding period begin? How does Frost Corporation treat the amount paid to Karen for her services?

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Definitions:

Psychological Exchange

Refers to a transaction or interaction between individuals that involves emotional or cognitive considerations, often in the context of relationships or social behavior.

Economic Exchange

The process of trading goods, services, or both, involving the transfer of money or other valuables between parties.

Reciprocity Norm

A social norm that suggests individuals should repay, in kind, what another has provided or done for them.

Role Transference

A psychological phenomenon where an individual assumes the attitudes, behaviors, or roles of another group or person, often seen in marketing when consumers identify with brand personalities.