Your clients, Lisa and Matthew, are planning to form Lima Corporation. Lisa will contribute $50,000 cash to Lima for 50 shares of its stock.

 Your clients, Lisa and Matthew, are planning to form Lima Corporation. Lisa will contribute

$50,000 cash to Lima for 50 shares of its stock. Matthew will contribute land having

a $35,000 adjusted basis and a $50,000 FMV for 50 shares of Lima stock. Lima will

borrow additional capital from a bank and then will subdivide and sell the land. Prepare

a memorandum for your tax manager outlining the tax treatment of the corporate formation.

In your memorandum, compare tax and financial accounting for this transaction.

References:

???? IRC Sec. 351

???? Accounting Standards Codification (ASC) 845 (Nonmonetary Transactions), formerly

APB No. 29

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