Balance Sheet and Tax Basis

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  • Topic: Balance sheet, Asset, Federal Insurance Contributions Act tax
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  • Published : November 4, 2012
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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 structure’s flexibility
* Protection of the liability
* The time 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 special allocations
* Adding 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 property to her corporation?

Loss Realized = FMV(Stock Received)+Mortgage Assumed–AdjustedTaxBasis
= $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 Zhang’s 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 corporation’s tax-adjusted basis in each of the assets received in the exchange?

The corporation’s carryover basis is $400,000; the value of assets received minus the aggregate loss on the assets transferred applied to land. Inventory = $10,000, Building = $100,000, and Land = $290,000. Assume the...
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