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

question 50

Essay

This year,John,Meg,and Karen form Frost Corporation.John contributes land purchased as an investment four years ago for $25,000 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 $50,000 adjusted basis and a $30,000 FMV in exchange for 30 shares of Frost stock.Karen contributes services worth $15,000 and $5,000 cash 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 services?

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Definitions:

Arithmetic Mean

A measure of central tendency calculated by summing all the scores and dividing by the number of scores. See Mean.

Mode

The number that occurs most often in a collection of data.

Weighted Mean

An average in which each data point contributes to the final mean with a weight that reflects its importance or frequency.

Central Tendency

A statistical measure that identifies a single value as representative of an entire distribution, with the mean, median, and mode being common examples.