Barry and Irv Form Swift Corporation

question 74

Essay

Barry and Irv form Swift Corporation. Barry transfers cash of $100,000 and equipment (basis of $300,000 and fair market value of $400,000)for 50% of Swift's stock. Irv transfers land and building (basis of $510,000 and fair market value of $450,000)and agrees to manage the business for one year for the other 50% of Swift's stock. The value of Irv's services for one year is $50,000.
a.What is Barry's recognized gain? Basis in the Swift Corporation stock?
b.What are the tax consequences to Irv?
c.What are the tax consequences to Swift Corporation?

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Definitions:

Efficiently

Performing or functioning in the best possible manner with the least waste of time and effort.

Economies of Scale

The cost advantage achieved by businesses when production becomes efficient, as the scale of operation increases leading to a reduction in average costs.

Positive Economic Profits

Earnings that exceed the total costs, including both the explicit and implicit costs of a business.

Expand

To increase the scale, scope, or size of something, often used in the context of business growth or economic expansion.