Sarah and Tony (mother and son) form Dove Corporation with the following investm
ID: 2556773 • Letter: S
Question
Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarab of $55,000; land by Tony (basis of $35,000 and fair market value of $4,000), Dove Corporation 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 35. Erica transfers land worth $500,000, basis of $100,000, to a newly formed corporation, Robin The sote was executed by Corporation, for all of Robin's stock, worth $300,000, and a 10-year note. Robin and made payable to Erica in the amount of $200,000. A a. Erica does not recognize gain. b. Erica recognizes gain of $400,000. a result of the transfer d. e. Robin Corporation has a basis of $300,000 in the land. None of the above. 36. Hazel transferred the following assets to Starling Corporation Adjusted Fair Market S120,000 48,000 108,000 $120,000 36,000 144,000 Cash Machinery Land In exchange, Hazel received 50% of Starling Corporation's only class of stock outstanding. The stock has value. However, all parties sincerely believe that the value of the stock Hazel received is Corporation five years ago a. Hazel has no gain or loss on the transfer b. Starling Corporation has a basis of $48,000 in the machinery and $108,000 in the land. Starling Corporation has a basis of $36,000 in the machinery and $144,000 in the land. c. d. Hazel has a basis of $276,000 in the stock of Starling Corporation. e. None of the above. 37. 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. e. Dawn has a zero basis in the stock she receives. None of the above.Explanation / Answer
34. D. Section 351 may apply because stock need not be issued to Sarah and Tony in proportion to the value of property transferred.
As per section 351, no gain or loss is recognized on transfer of property to corporation by one or more persons in exchange of stock if immediately after such transfer they are in control of the corporation.
35. D. Robin corporation has a basis of $300,000 in the land.
Erica transferred land worth $500,000 and Robin issued stock worth $300,000 and a note worth $200,000 in exchange of land. Note received by Erica is boot received so Erica will recognize gain of $200,000.
Robin corporation's basis in land is Erica's basis in land plus boot paid that is $100000 + $200000 = $300000.
36. C. Starling Corporation has a basis of $36000 in the machinery and $144000 in the land.
FMV of the property transfered in taken as basis by the Starling Corporation.
37. C. Dawn has a basis of $10000 in the stock she receives.
Dawn basis in stock = Basis of assets transfered - liabilites assumed by the corporation
= $105000 - $95000 = $10000
Cash basis trade payables are not considered in computation of stock basis of Dawn. In addition, trade accounts payable are not considered to be liability for thje purpose of section 357 (c).
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