Leonard transfers equipment (basis of $40,000 and fair market value of $100,000) for additional stock in Green Corporation. After the transfer, Leonard owns 90% of the stock. Leonard had claimed depreciation of $50,000 on the equipment prior to transferring it to Green Corporation. With respect to the transfer:a. Leonard has ordinary income of $50,000. b. Leonard has ordinary income of $50,000 and a § 1231 gain of $10,000c. Green Corporation has ordinary income of $50,000. d. Green Corporation has a basis of $40,000 in the equipment and it will have no depreciation recapture if it later disposes of the equipment in a taxable transaction. e. None of the above

Question

Riya Ellis

Business

3 June, 21:21

Leonard transfers equipment (basis of $40,000 and fair market value of $100,000) for additional stock in Green Corporation. After the transfer, Leonard owns 90% of the stock. Leonard had claimed depreciation of $50,000 on the equipment prior to transferring it to Green Corporation. With respect to the transfer:a. Leonard has ordinary income of $50,000. b. Leonard has ordinary income of $50,000 and a § 1231 gain of $10,000c. Green Corporation has ordinary income of $50,000. d. Green Corporation has a basis of $40,000 in the equipment and it will have no depreciation recapture if it later disposes of the equipment in a taxable transaction. e. None of the above

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Tucker Newton · Answer 1

Answer: e. None of the above.

Explanation:

Under IFRS, leonard will not recognize this either gain or depreciation as the transfer has taken place. But when Green Corporation sells the equipment then it will have to consider the potential which was generated in respect to the transfer with leonard.