In 2017, Aaron transferred property worth $75,000 and services worth $25,000 to the BJ Corporation. In exchange, he received stock in BJ valued at $100,000. Immediately after the exchange, Aaron owned 80% of the only class of outstanding stock. Which of the following is true with regard to Aaron's treatment of this transaction in 2017? A. Ordinary income of $25,000. B. Short-term capital gain of $25,000. C. Short-term capital gain of $100,000. D. No income until the stock is sold.

Question

Rene

Business

20 December, 20:14

In 2017, Aaron transferred property worth $75,000 and services worth $25,000 to the BJ Corporation. In exchange, he received stock in BJ valued at $100,000. Immediately after the exchange, Aaron owned 80% of the only class of outstanding stock. Which of the following is true with regard to Aaron's treatment of this transaction in 2017? A. Ordinary income of $25,000. B. Short-term capital gain of $25,000. C. Short-term capital gain of $100,000. D. No income until the stock is sold.

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Gina Santos · Answer 1

A. Ordinary income of $25,000

Shares BJ 100,000

Property 75,000

Services fees 25,000

Explanation:

We adquire the company by performing this services, we can recognize them.

You must recognize ordinary income of $25,000 for services rendered to the corporation.

BJ will consider the 25,000 as compensation paid.