Balance Sheet and Tax Basis

week 5 Problem Solution Set Accounting/547 October 5th, 2012 Chapter 15, 83 a) Significant tax issues or concerns that may differ across entity types are * The business structures flexibility * Protection of the liability * The snip and cost of organizing the entity Significant non-tax issues or concerns that may differ across entity types are * Lowering of self-employment and FICA taxes * Flexibility of specific allocations * Adding brand-new owners b) My recommendation for forming CCS is LLC.I chose LLC because the organizing business members may reduce their individual tax liabilities by operating as a LLC. CCS should be concerned about FICA and self-employment taxes. LLCs must pay self-employment taxes. As the business grows past 3-4 years, I recommend CCS to look at the possibility of switching to and S Corporation. At this point, compensation needs may have reduced and the members would wish to fully benefit from self-employment tax removal. Chapter 19, 39 A. What amount of gain or loss does Zhang realize on the transfer of the shoes to her sess?Loss Realized = FMV(Stock Received)+Mortgage fanciedAdjustedTax institution = $300,000 + $100,000 $410,000 Loss Realized= ($10,000) B. What amount of gain or loss does Zhang recognize on the transfer of the property to corporation. No loss is recognized on this transfer because of the requirements of Section 351. C. What is Zhangs tax basis in the stock she receives in the exchange? Tax Basis = Substituted Basis of the Assets Transferred Assumed Mortgage = $410,000 $100,000 Tax Basis= $310,000 D. What is the corporations tax-adjusted basis in each of the assets received in the exchange?The corporations carryover basis is $400,000 the value of assets received minus the aggregate loss on the assets transferred applied to land. Inventory = $10,000, create = $100,000, and Land = $290,000. Assume the corporation assumed a mortgage of $500,000 attached to the building and land. Assume the average grocery store value of the building is now $250,000 and the fair market value of the land is $530,000. The fair market value of the stock remains $300,000. E. How much, if any, gain or loss does Zhang recognize on the exchange assume the revised facts?Realized do $300K Stock FMV + $500K Mortgage $410K Aggregate Tax Basis = $390,000 Realized Gain Tax Basis of stead $500K $410K = $90,000 Zhang would recognize a gain of $90,000 on the transfer under the new conditions since the assumed liability is greater than the total tax basis of the transferred property. F. What is Zhangs tax basis in the stock she receives in the exchange? Tax Basis of Stock Received = Tax Adjusted Property Basis Transferred + Exchange Gain Recognized Mortgage Assumed $410,000 + $90,000 $500,000 = 0, Zhang can defer recognition of the $300,000 in stock. G. What is the corporations tax-adjusted basis in each of the assets received in the exchange? Inventory = $10,000 + ($20,000/$800,000 x $90,000) = $12,250 Buildin g = $100,000 + ($250,000 / $800,000 x $90,000)= $128,125 Land= $300,000 + ($530,000 / $800,000 x $90,000) = $359,625 Total= Inventory + Building + Land = $12,250 + $128,125 + $359,625 Total = $500,000 The corporations total tax basis is the $410,000 carryover basis plus the gain recognized on the exchange.