Question

Rhonda owns 50% of the stock of Peach Corporation. She and the other 50% shareholder, Rachel, have decided that additional contributions of capital are needed if Peach is to remain successful in its competitive industry. The two shareholders have agreed that Rhonda will contribute assets having a value of $200,000 (adjusted basis of $15,000) in exchange for additional shares of stock. After the transaction, Rhonda will hold 75% of Peach Corporation and Rachel's interest will fall to 25%. a. What gain is realized on the transaction

Answer 1

$185,000

Explanation:

According to the given situation, the computation of gain is shown below:-

Recognized gain = Amount realized—stock - Adjusted basis of property transferred

= $200,000 - $15,000

= $185,000

Therefore, for computing the recognized gain we simply applied the above formula.

Hence, the gain realized on the transaction is $185,000