Eric, Jack, and Ginger form Cream Corporation with the following…

Eric, Jack, and Ginger form Cream Corporation with the following consideration



Fair Market


From. Eric Cash






From Jack

Land and Building



From Ginger

Legal and accounting services related to the incorporation



Cream Corporation issues its 500 shares of stock as follows: 250 to Eric, 200 to Jack, and 50 to Ginger.

In addition, Jack receives $50,000 in cash

Part One (10 points)

a. Do Eric, Jack, or Ginger recognize gain (or incorne)? If so, who recognizes how much?


  1. What basis does Jack take in the Cream Corporation stock?
  2. What basis does Cream Corporation have in the inventory, the land, and the building?
  3. What basis does Ginger have in the Cream Corporation stock?

Part Two (4 points)

  1. Assume the distribution of shares is 200 to Eric, 150 to Jack, and 150 to Ginger (also assume this is an economically balanced, fair distribution). Does this change the result? How? Explain.
  2. Same as Part Two (a), except Ginger did not participate in the original transaction. Ginger’s acquisition occurred sometime later and was not contemplated in the original incorporation. Does this change the result? How? Explain.

Part Three (6 points)

  1. Refer back to part one. Instead of receiving cash of $50,000, Cream Corporation assumes mortgage Jack had on the property of $50,000. Does this change the result? How? Explain.
  2. Same as Part Three (a), except that the mortgage was taken out by Jack about a month ago to I purchase a new BMW. Does this change the result? How? Explain.
  3. Same as Part Three (a), except that the Jack’s adjusted basis in the land and building was only $40,000. Does this change the result? How? Explain.

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