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

Question

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The Answer is a)Since Sec.351 does not apply because 25% (20 shares out of 80 total shares)of the stock is issued for services,John must recognize $15,000 of capital gain.
b)John's basis in his shares is $30,000 and his holding period begins on the day after the exchange date.
c)Meg recognizes a $5,000 Sec.1231 loss.
d)Meg's basis in her shares is $30,000 and her holding period begins on the day after the exchange date.
e)Karen must recognize $20,000 of ordinary income.
f)Karen's basis in her shares is $20,000.Her holding period begins on the day after the exchange date.
g)Frost Corporation has a $30,000 basis in the land and a $30,000 basis in the machinery.Its holding period for each asset begins on the day after the exchange date.The services,if capitalized,would have a $20,000 basis.The services may be amortizable if they are organizational or start-up expenditures.

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

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