Exam 2: Corporate Formations and Capital Structure

On July 9,2008,Tom purchased a computer (five-year property for MACRS purposes)for $6,000,which he used in his sole proprietorship.He claimed $1,200 (0.20 × $6,000)of depreciation for 2008.On February 9,2009,he transfers the computer and other assets of his sole proprietorship to Brewer Corporation in exchange for Brewer stock in a transfer qualifying under Sec.351.What is the amount of depreciation for 2008 claimed by Tom? What is the amount of depreciation for 2009 claimed by Brewer Corporation? What is Brewer's basis in the computer on the date of transfer?

If an individual transfers an ongoing business to a corporation in a Sec.351 exchange,the individual must recognize any realized gain

A sole proprietor is required to use the same reporting period for both business and individual tax information.

The transferee corporation's basis in property received in a Sec.351 exchange is

Azar,who owns 100% of Hat Corporation,transfers land having a $50,000 FMV and a $30,000 adjusted basis to Hat.In return,Azar receives additional shares of Hat common stock having a $40,000 FMV and Cap Corporation common stock having a $10,000 FMV.The Cap Corporation common stock,a capital asset,has a $2,500 basis on Hat's books.What is Azar's realized and recognized gain? Does Hat Corporation recognize a gain on the stock transfer to Azar?

Martin operates a law practice as a sole proprietorship using the cash method of accounting.Martin incorporates the law practice and transfers the following items to a new,solely owned corporation. Martin must recognize a gain of ________ and has a stock basis of ________:

If a corporation's total adjusted bases for all properties transferred exceed the total FMV of the properties,the corporation's bases in the property is limited to FMV if no election is made.

Max transfers the following properties to a newly created corporation for $90,000 of stock and $10,000 cash in a transaction that qualifies under Sec.351. Max's recognized gain is

Identify which of the following statements is true.

Three members form an LLC in the current year.Which of the following statements is incorrect?

Identify which of the following statements is true.

The transferor's holding period for any stock received in exchange for a capital asset

The assignment of income doctrine does not apply if the transferor in a Sec.351 exchange in which no gain is otherwise recognized transfers substantially all the assets and liabilities of the transferor's trade or business to the controlled corporation.

Lynn transfers land having a $50,000 adjusted basis,an $80,000 FMV,and $10,000 cash to Allied Corporation in exchange for 100% of Allied's stock.The corporation assumes the $70,000 mortgage on the land.Which of the following statements is correct?

Identify which of the following statements is false.

Upon formation of a corporation,its assets have the same bases for book and tax purposes.

Under Sec.351,corporate stock may include all of the following except

Identify which of the following statements is true.

Sarah has advanced money to her corporation.What tax issues should she consider with respect to this money?

Business assets of a sole proprietorship are owned by