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Question;344. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que44;Jane and Walt form Orange Corporation. Jane transfers equipment worth $475,000;(basis of $100,000) and cash of $25,000 to Orange Corporation for 50% of its;stock. Walt transfers a building and land worth $525,000 (basis of $200,000);for 50% of Orange?s stock and $25,000 cash.;a.;Jane recognizes a gain of $375,000, Walt recognizes a gain of $325,000.;b. Jane recognizes a gain of $25,000;Walt recognizes no gain.;c. Neither Jane nor Walt recognizes;gain.;*d. Jane recognizes no gain, Walt;recognizes a gain of $25,000.;e. None of the above.;345. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que45;Eve transfers property (basis of $120,000 and fair market value of $400,000) to;Green Corporation for 80% of its stock (worth $350,000) and a long-term note;(worth $50,000), executed by Green Corporation and made payable to Eve. As a;result of the transfer;a.;Eve recognizes no gain.;b. Eve recognizes a gain of $230,000.;c. Eve recognizes a gain of $280,000.;*d. Eve recognizes a gain of $50,000.;e. None of the above.;346. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que46;Ann, Irene, and Bob incorporate their respective businesses and form Dove Corporation.;Ann exchanges her property (basis of $100,000 and fair market value of;$400,000) for 200 shares in Dove Corporation on March 1, 2009. Irene exchanges;her property (basis of $140,000 and fair market value of $600,000) for 300;shares in Dove Corporation on April 11, 2009. Bob transfers his property (basis;of $250,000 and fair market value of $1,000,000) for 500 shares in Dove;Corporation on May 15, 2011. Bob?s transfer is not part of a prearranged plan;with Ann and Irene to incorporate their businesses. What gain, if any, will Bob;recognize on the transfer?;a.;$1,000,000.;*b. $750,000.;c. $250,000.;d. $0.;e. None of the above.;347. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que47;Tom and George form Swan Corporation with the following investments: Tom;transfers machinery worth $100,000 (basis of $40,000), while George transfers;land worth $90,000 (basis of $20,000) and services rendered in organizing the;corporation worth $10,000. Each is issued 25 shares in Swan Corporation. With;respect to the transfers;a.;Tom has no recognized gain, George recognizes gain/income of $80,000.;b. Neither Tom nor George recognizes;gain or income.;c. Swan Corporation has a basis of;$30,000 in the land.;*d. George has a basis of $30,000 in the;shares of Swan Corporation.;e. None of the above.;348. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que48;Ann transferred land worth $200,000, with a tax basis of $40,000, to Brown;Corporation, an existing entity, for 100 shares of its stock. Brown Corporation;has two other shareholders, Bill and Bob, each of whom holds 100 shares. With;respect to the transfer;a.;Ann has no recognized gain.;b. Brown Corporation has a basis of;$160,000 in the land.;*c. Ann has a basis of $200,000 in her;100 shares in Brown Corporation.;d. Ann has a basis of $40,000 in her 100;shares in Brown Corporation.;e. None of the above.;349. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que49;Kevin and Nicole form Indigo Corporation with the following transfers;inventory from Kevin (basis of $360,000 and fair market value of $400,000) and;improved real estate from Nicole (basis of $320,000 and fair market value of;$375,000). Nicole, an accountant, agrees to contribute her services (worth;$25,000) in organizing Indigo. The corporation?s stock is distributed equally;to Kevin and Nicole. As a result of these transfers;a.;Indigo can deduct $25,000 as a business expense.;b. Nicole has a recognized gain of;$55,000 on the transfer of the real estate.;*c. Indigo has a basis of $360,000 in;the inventory.;d. Indigo has a basis of $375,000 in the;real estate.;e. None of the above.;350. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que50;Tara incorporates her sole proprietorship, transferring it to newly formed;Black Corporation. The assets transferred have an adjusted basis of $240,000;and a fair market value of $300,000. Also transferred was $10,000 in;liabilities, $1,000 of which was personal and the balance of $9,000 being;business related. In return for these transfers, Tara receives all of the stock;in Black Corporation.;a.;Black Corporation has a basis of $241,000 in the property.;b. Black Corporation has a basis of;$240,000 in the property.;c. Tara?s basis in the Black Corporation;stock is $241,000.;d. Tara?s basis in the Black Corporation;stock is $249,000.;*e. None of the above.;351. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que51;Tim, a cash basis taxpayer, incorporates his sole proprietorship. He transfers;the following items to newly created Wren Corporation.;Adjusted;Fair Market;Basis;Value;Cash;$ 20,000;$ 20,000;Building;110,000;160,000;Mortgage payable (secured by the building and held;for;15 years);135,000;135,000;With respect to this transaction;a.;Wren Corporation?s basis in the building is $110,000.;b. Tim has no recognized gain.;c. Tim has a recognized gain of $25,000.;*d. Tim has a recognized gain of $5,000.;e. None of the above.;352. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que52;Mary transfers a building (adjusted basis of $15,000 and fair market value of;$90,000) to White Corporation. In return, Mary receives 80% of White;Corporation?s stock (worth $65,000) and an automobile (fair market value of;$5,000). In addition, there is an outstanding mortgage of $20,000 (taken out 15;years ago) on the building, which White Corporation assumes. With respect to;this transaction;*a.;Mary?s recognized gain is $10,000.;b. Mary?s recognized gain is $5,000.;c. Mary has no recognized gain.;d. White Corporation?s basis in the;building is $15,000.;e. None of the above.;353. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que53;Kim owns 100% of the stock of Cardinal Corporation. In the current year Kim;transfers an installment obligation, tax basis of $30,000 and fair market value;of $200,000, for additional stock in Cardinal worth $200,000.;*a.;Kim recognizes no taxable gain on the transfer.;b. Kim has a taxable gain of $170,000.;c. Kim has a taxable gain of $180,000.;d. Kim has a basis of $200,000 in the;additional stock she received in Cardinal Corporation.;e. None of the above.;354. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que54;Sarah and Emily form Red Corporation with the following investments: Sarah;transfers computers worth $200,000 (basis of $80,000), while Emily transfers;real estate worth $180,000 (basis of $40,000) and services (worth $20,000);rendered in organizing the corporation. Each is issued 600 shares in Red;Corporation. With respect to the transfers;a.;Sarah has no recognized gain, Emily recognizes income/gain of $160,000.;b. Neither Sarah nor Emily recognizes;gain or income.;c. Red Corporation has a basis of;$60,000 in the real estate.;*d. Emily has a basis of $60,000 in the;shares of Red Corporation.;e. None of the above.;355. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que55;Wade and Paul form Swan Corporation with the following investments. Wade;transfers machinery (basis of $40,000 and fair market value of $100,000), while;Paul transfers land (basis of $20,000 and fair market value of $90,000) and;services rendered (worth $10,000) in organizing the corporation. Each is issued;25 shares in Swan Corporation. With respect to the transfers;a.;Wade has no recognized gain, Paul recognizes income/gain of $80,000.;b. Neither Wade nor Paul has recognized;gain or income on the transfers.;c. Swan Corporation has a basis of;$30,000 in the land transferred by Paul.;*d. Paul has a basis of $30,000 in the;25 shares he acquires in Swan Corporation.;e. None of the above.;356. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que56;Rick transferred the following assets and liabilities to Warbler Corporation.;Adjusted;Fair Market;Basis;Value;Building;$210,000;$225,000;Equipment;45,000;75,000;Trucks;15,000;30,000;Mortgage (held for four years) on building;30,000;30,000;In return, Rick received $75,000 in cash plus 90% of Warbler Corporation?s only;class of stock outstanding (fair market value of $225,000).;*a.;Rick has a recognized gain of $60,000.;b. Rick has a recognized gain of;$75,000.;c. Rick?s basis in the stock of Warbler;Corporation is $270,000.;d. Warbler Corporation has the same;basis in the assets received as Rick does in the stock.;e. None of the above.;357. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que57;Sarah and Tony (mother and son) form Dove Corporation with the following;investments: cash by Sarah of $55,000, land by Tony (basis of $35,000 and fair;market value of $45,000). Dove Corporation issues 200 shares of stock, 100 each;to Sarah and Tony. Thus, each receives stock in Dove worth $50,000.;a.;Section 351 cannot apply since Sarah should have received 110 shares instead of;only 100.;b. As a result of the transfer, Tony;recognizes a gain of $10,000.;c. Tony?s basis in the stock of Dove;Corporation is $50,000.;*d. Section 351 may apply because stock;need not be issued to Sarah and Tony in proportion to the value of the property;transferred.;e. None of the above.;358. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que58;Hunter and Warren form Tan Corporation. Hunter transfers equipment (basis of;$210,000 and fair market value of $180,000) while Warren transfers land (basis of;$15,000 and fair market value of $150,000) and $30,000 of cash. Each receives;50% of Tan?s stock. As a result of these transfers;a.;Hunter has a recognized loss of $30,000, Warren has a recognized gain of;$135,000.;*b. Neither Hunter nor Warren has any;recognized gain or loss.;c. Hunter has no recognized loss, Warren;has a recognized gain of $30,000.;d. Tan Corporation has a basis in the;land of $45,000.;e. None of the above.;359. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que59;Erica transfers land worth $500,000, basis of $100,000, to a newly formed;corporation, Robin Corporation, for all of Robin?s stock, worth $300,000, and a;10-year note. The note was executed by Robin and made payable to Erica in the;amount of $200,000. As a result of the transfer;a.;Erica does not recognize gain.;b. Erica recognizes gain of $400,000.;c. Robin Corporation has a basis of;$100,000 in the land.;*d. Robin Corporation has a basis of;$300,000 in the land.;e. None of the above.;360. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que60;Kathleen transferred the following assets to Mockingbird Corporation.;Adjusted;Fair Market;Basis;Value;Cash;$100,000;$100,000;Equipment;48,000;36,000;Land;108,000;144,000;In exchange, Kathleen received 40% of Mockingbird Corporation?s only class of;stock outstanding. The stock has no established value. However, all parties;sincerely believe that the value of the stock Kathleen received is the;equivalent of the value of the assets she transferred. The only other;shareholder, Rick, formed Mockingbird Corporation five years ago.;a.;Kathleen has no gain or loss on the transfer.;b. Mockingbird Corporation has a basis;of $48,000 in the equipment and $108,000 in the land.;c. Kathleen has a basis of $256,000 in;the stock of Mockingbird Corporation.;*d. Mockingbird Corporation has a basis;of $36,000 in the equipment and $144,000 in the land.;e. None of the above.;361. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que61;Dawn, a sole proprietor, was engaged in a service business and reported her;income on a cash basis. Later, she incorporates her business and transfers the;assets of the business to the corporation in return for all the stock in the;corporation plus the corporation?s assumption of the liabilities of her;proprietorship. All the receivables and the unpaid trade payables are;transferred to the newly formed corporation. The assets of the proprietorship;had a basis of $105,000 and fair market value of $300,000. The trade accounts;payable totaled $25,000. There was a note payable to the bank in the amount of;$95,000 that the corporation assumes. The note was issued for the purchase of;computers and other business equipment.;a.;Dawn has a gain on the transfer of $15,000.;b. The basis of the assets to the;corporation is $300,000.;*c. Dawn has a basis of $10,000 in the;stock she receives.;d. Dawn has a zero basis in the stock;she receives.;e. None of the above.;362. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que62;Carl transfers land to Cardinal Corporation for 90% of the stock in Cardinal;Corporation worth $20,000 plus a note payable to Carl in the amount of $40,000;and the assumption by Cardinal Corporation of a mortgage on the land in the;amount of $100,000. The land, which has a basis to Carl of $70,000, is worth;$160,000.;a.;Carl will have a recognized gain on the transfer of $90,000.;b. Carl will have a recognized gain on;the transfer of $30,000.;c. Cardinal Corporation will have a;basis in the land transferred by Carl of $70,000.;d. Cardinal Corporation will have a;basis in the land transferred by Carl of $160,000.;*e. None of the above.;363. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que63;Kirby and Helen form Red Corporation. Kirby transfers property, basis of;$20,000 and value of $300,000, for 100 shares in Red Corporation. Helen;transfers property, basis of $40,000 and value of $280,000, and provides legal;services in organizing the corporation. The value of her services is $20,000.;In return Helen receives 100 shares in Red Corporation. With respect to the;transfers;a.;Kirby will recognize gain.;b. Helen will not recognize any gain or;income.;c. Red Corporation will have a basis of;$280,000 in the property it acquired from Helen.;d. Red will have a business deduction of;$20,000.;*e. None of the above.;364. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que64;Joe and Kay form Gull Corporation. Joe transfers cash of $250,000 for 200;shares in Gull Corporation. Kay transfers property with a basis of $50,000 and;fair market value of $240,000. She agrees to accept 200 shares in Gull;Corporation for the property and for providing bookkeeping services to the;corporation in its first year of operation. The value of Kay?s services is;$10,000. With respect to the transfer;a.;Gull Corporation has a basis of $240,000 in the property transferred by Kay.;b. Neither Joe nor Kay recognizes gain;or income on the exchanges.;*c. Gull Corporation has a business;deduction under ? 162 of $10,000.;d. Gull capitalizes $10,000 as;organizational costs.;e. None of the above.;365. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que65;Earl and Mary form Crow Corporation. Earl transfers property, basis of $200,000;and value of $1,600,000, for 50 shares in Crow Corporation. Mary transfers;property, basis of $80,000 and value of $1,480,000, and agrees to serve as;manager of Crow for one year, in return Mary receives 50 shares of Crow. The;value of Mary?s services is $120,000. With respect to the transfers;a.;Mary will not recognize gain or income.;b. Earl will recognize a gain of;$1,400,000.;c. Crow Corporation has a basis of;$1,480,000 in the property it received from Mary.;*d. Crow will have a business deduction;of $120,000 for the value of the services Mary will render.;e. None of the above.;366. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que66;Four individuals form Chickadee Corporation under ? 351. Two of these;individuals, Jane and Walt, made the following contributions;Adjusted;Fair Market;Basis;Value;From Jane?;Cash;$360,000;$360,000;Patent;?0?;40,000;From Walt?;Equipment;(depreciation claimed of $100,000);240,000;370,000;Both Jane and Walt receive stock in Chickadee Corporation equal to the value of;their investments.;a.;Jane must recognize income of $40,000, Walt has no income.;*b. Neither Jane nor Walt recognize;income.;c. Walt must recognize income of;$130,000, Jane has no income.;d. Walt must recognize income of;$100,000, Jane has no income.;e. None of the above.;367. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que67;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 $10,000.;c. 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.;368. CHAPTER;4?CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que68;In order to induce Yellow Corporation to build a new manufacturing facility in;Knoxville, Tennessee, the city donates land (fair market value of $400,000) and;cash of $100,000 to the corporation. Several months after the donation, Yellow;Corporation spends $450,000 (which includes the $100,000 received from;Knoxville) on the construction of a new plant located on the donated land.;a.;Yellow recognizes income of $100,000 as to the donation.;b. Yellow has a zero basis in the land;and a basis of $450,000 in the plant.;c. Yellow recognizes income of $500,000;as to the donation.;*d. Yellow has a zero basis in the land;and a basis of $350,000 in the plant.;e. None of the above.

 

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