Exam 2: Corporate Formations and Capital Structure

Ra Corporation issues a twenty-year obligation at its $1,000 face amount.Rames purchases the obligation for $1,000 on the issue date.Due to a decline in interest rates,Ra calls the obligation by paying $1,010 to each of the holders of the twenty-year obligations.What is the tax treatment of the $1,010 by Ra and Rames?

Discuss the impact of the contribution of cash as part of a Sec.351 exchange.

Any losses on the sale of Section 1244 stock are ordinary.

Yenhung,who is single,forms a corporation using a tax-free asset transfer,which qualifies under Sec.351.She contributes property having an adjusted basis of $50,000 and an FMV of $40,000.The stock received from the corporation is Sec.1244 stock.When Yenhung sells the stock for $30,000,her loss is

What is the tax treatment for a contribution of capital to a corporation by a nonshareholder?

Bread Corporation is a C corporation with earnings of $100,000.It paid $20,000 in dividends to its sole shareholder,Gerald.Gerald also owns 100% of Butter Corporation,an S corporation.Butter had net taxable income of $80,000 and made a $15,000 distribution to Gerald.What income will Gerald report from Bread and Butter's activities?

Identify which of the following statements is true.

A medical doctor incorporates her medical practice,which is operated as a sole proprietorship.The proprietorship uses the cash method of accounting.Among the assets contributed to the new corporation are unrealized receivables worth $40,000.The receivables are collected by the corporation.Which of the following statements is correct?

Lynn transfers property with a $56,000 adjusted basis and a $100,000 FMV to Florida Corporation for 75 shares of Florida stock.Fred,Lynn's father,transfers property with a $64,000 adjusted basis and a $100,000 FMV to Florida Corporation for the remaining 25 shares of Florida stock. a)What is the amount of each transferor's gain or loss? b)What is Lynn's basis for her Florida stock? c)What is Fred's basis for his Florida stock?

There are no tax consequences of a partnership converting to a C corporation.

Identify which of the following statements is true.

Brad forms Vott Corporation by contributing equipment,which has a basis of $50,000 and an FMV of $40,000 in exchange for Vott stock.Brad also contributes $5,000 in cash.If the transaction meets the Sec.351 control and ownership tests,what are the tax consequences to Brad?

Identify which of the following statements is true.

The transferor's holding period for any boot property received in a Sec.351 stock exchange

Barry,Dan,and Edith together form a new corporation; Barry and Dan each contribute property in exchange for stock.Within two weeks after the formation,the corporation issues additional stock to Edith in exchange for property.Barry and Dan each hold 10,000 shares and Edith will receive 9,000 shares.Which transactions will qualify for nonrecognition?

The transferor's basis for any noncash boot property received in a Sec.351 transaction is the boot's FMV reduced by any unrecognized gain.

Mario and Lupita form a corporation in a transaction coming under Sec.351.Lupita transfers property with an adjusted basis of $150,000 and an FMV of $200,000 in exchange for one-half of the stock.The property has an $80,000 mortgage,which the corporation assumes.Lupita has a recognized gain of

Beth transfers an asset having an FMV of $200,000 and an adjusted basis of $150,000 to ABC Corporation in a Sec.351 transaction.Beth receives in exchange ABC common stock having an FMV of $175,000 and Zeus Corporation common stock (a capital asset)having an FMV of $25,000 and a basis of $10,000 to ABC Corporation.ABC Corporation must recognize

On January 20 of the current year,a group of ten individuals organize an LLC to conduct an ink-making business in Florida.This year,the LLC is an eligible entity under the check-the-box regulations.How will the LLC be taxed?

Identify which of the following statements is true.