Individuals Adam and Lonnie form an S corporation, with Adam contributing cash o
ID: 2487463 • Letter: I
Question
Individuals Adam and Lonnie form an S corporation, with Adam contributing cash of $100,000 for a 50% interest, and Lonnie contributing appreciated ordinary income property with an adjusted basis of $20,000 and a fair market value of $100,000.
a. Determine Lonnie's initial basis in the stock, assuming that she receives a 50% interest.
b. The S corporation sells the property for $120,000. Determine Adam and Lonnie's stock basis after the sale.
c. Determine Adam's and Lonnie's gain or loss if the company is liquidated.
Explanation / Answer
a. Lonnie's initial basis in the stock is $20,000 assuming that she receives a 50% interest.
b. Adam and Lonnie's stock basis after the sale of property in $120,000 is as follows:
c. Adam's and Lonnie's gain or loss if the company is liquidated is as follows:
Particulars Adam Lonnie Initial basis 1,00,000 20,000 Gain on sale of property (divided equally) 120,000-20,000 50,000 50,000 Adjusted Basis 1,50,000 70,000