33.   LO.1, 2, 3 Cynthia, a sole proprietor, was engaged in a service business and reported her income on the cash basis. On February 2, 2015, she incorporates   her

business as Dove Corporation and transfers the assets of the business to the corpora- tion in return for all of the stock in addition to the corporation’s assumption of her proprietorship’s liabilities. All of the receivables and the unpaid trade payables are transferred to the newly formed corporation. The balance sheet of the corporation immediately after its formation is as follows:

 

Assets

Basis to Dove                         Fair Market Value

Cash	$  80,000	Â	$       80,000	Â
Accounts  receivable	–0–	Â	240,000	Â
Equipment (cost $180,000; depreciation previously claimed $60,000)	  120,000	Â	  320,000	Â
Building  (straight-line depreciation)	160,000	Â	400,000	Â
Land	40,000	Â	160,000	Â
Total	$400,000	Â	$1,200,000	Â
Â	Â	Â	Â	Â

Liabilities and Stockholder’s Equity

Liabilities:

Accounts  payable—trade                                                                                                                            $  120,000

Notes  payable—bank                                                                                                                                            360,000

Stockholder’s equity:

Common  stock                                                                                                                                                           720,000

Total                                                                                                                                                                             $1,200,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discuss the tax consequences of the incorporation of the business to Cynthia and to Dove Corporation.