Rita Forms Finch Corporation by Transferring Land (Basis of $125,000;

question 18

Essay

Rita forms Finch Corporation by transferring land (basis of $125,000; fair market value of $750,000) which is subject to a mortgage of $375,000. Two weeks prior to incorporating Finch, Rita borrows $125,000 for personal purposes
and gives the lender a second mortgage on the land. Finch Corporation issues stock worth $250,000 to Rita and assumes the two mortgages on the land. What are the tax consequences to Rita and to Finch Corporation?

---

Definitions:

Units Produced

A measure of production output, quantifying the number of complete units manufactured within a specific period.

Commissions Paid

Expenses a company incurs from paying a fee to agents or salespersons based on the sales volume or contracts they secure.

Cost of Production Report

A summary documenting the costs associated with producing goods, usually within a manufacturing environment.

Direct Labor

The labor cost of workers directly involved in the production of goods or services, considered a variable cost.