Rhonda owns 50% of the stock of Peach Corporation. She and the other 50% shareholder, Rachel, have decided that additional contributions of capital are needed if Peach is to remain successful in its competitive industry. The two shareholders have agreed that Rhonda will contribute assets having a value of $200,000 (adjusted basis of $15,000) in exchange for additional shares of stock. After the transaction, Rhonda will hold 75% of Peach Corporation and Rachel's interest will fall to 25%. Question Content Area a. What gain is realized on the transaction? $fill in the blank 8aa4c10ca069fc9_1 How much of the gain will be recognized? $fill in the blank 8aa4c10ca069fc9_2 Question Content Area b. Rhonda is not satisfied with the transaction as proposed. Assume Rachel agrees to transfer $1,000 of cash in exchange for additional stock. In this case, Rhonda will own slightly less than 75% of Peach and Rachel's interest will be slightly more than 25%. How will the consequences change? Rhonda's plan to avoid recognizing a gain be successful. Rachel's interest be counted, since the value of the stock she would receive is compared to the value of the stock she already owns. Question Content Area c. If Rhonda still is not satisfied with the result, what should be done to avoid any gain recognition? Rhonda can transfer property that appreciated in value. Rachel could contribute property of an amount that small relative to the value of the stock already owned.

Let's address each part of the question step-by-step. ### Part a: Gain Realized and Recognized **Rhonda's Contribution**: - Fair Market Value of Assets: $200,000 - Adjusted Basis of Assets: $15,000 **Gain Realized**: - Gain Realized = Fair Market Value - Adjusted Basis - Gain Realized = $200,000 - $15,000 = $185,000 **Gain Recognized**: - Under § 351, no gain or loss is recognized if property is transferred to a corporation solely in exchange for stock and the transferors control the corporation immediately after the exchange. - However, in this case, Rhonda will own 75% of Peach Corporation after the transaction, and Rachel will own 25%. Since Rhonda alone does not meet the 80% control requirement, the transaction does not qualify for non-recognition under § 351. Therefore, Rhonda will recognize the entire gain. **Completed Statements**: - What gain is realized on the transaction? **$185,000** - How much of the gain will be recognized? **$185,000** ### Part b: Rhonda's Plan with Rachel's Contribution **Scenario**: - Rachel contributes $1,000 of cash in exchange for additional stock. - Rhonda will own slightly less than 75%, and Rachel's interest will be slightly more than 25%. **Analysis**: - For the transaction to

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