Norman transfers machinery that has a $45,000 basis and a $105,000 FMV and $30,000 in money to Elnor Corporation in exchange for 50 shares of Elnor stock. The machinery, used in Norman's business, originally cost him $150,000 and is subject to an $84,000 liability which Elnor Corporation assumes. Kate exchanges $51,000 cash for the remaining 50 shares of Elnor stock.a)What is the amount and character of Norman's recognized gain or loss?b)What is his basis in the Elnor stock?c)What is Elnor's basis in the machinery?d)What is the amount and character of Kate's recognized gain or loss?e)What is Kate's basis in the Elnor stock?f)When do Norman and Kate's holding periods for their stock begin?
What will be an ideal response?
| a) | Norman's realized gain is $60,000 [($51,000 + $84,000) - ($45,000 + $30,000)]. He must |
| b) | Norman's basis for his Elnor stock is 0 ($45,000 + $30,000 - $84,000 + $9,000 gain). |
| c) | Elnor's basis in the machinery is $54,000 ($45,000 + $9,000). |
| d) | Kate does not recognize any gain or loss. |
| e) | Kate's basis is $51,000. |
| f) | Norman's holding period includes his holding period for the machinery. Kate's holding period |
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