Exam 2: Corporate Formations and Capital Structure

South Corporation acquires 100 shares of treasury stock for $10,000.The next year,South reissues the 100 shares for land having a $15,000 FMV.What is the amount of gain or loss realized by South Corporation,and how much is recognized?

The City of Springfield donates land worth $250,000 to Deuce Corporation to induce it to locate in Springfield and provide 1,000 jobs for its citizens.How much gross income must Deuce Corporation recognize because of the land contribution,and what is the land's basis to Deuce Corporation?

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

Why would a transferor want to avoid the nonrecognition of gain under Sec.351? How can the nonrecognition provision of Sec.351 be avoided?

Identify which of the following statements is true.

The City of Portland gives Data Corporation $60,000 cash and land worth $100,000 to induce it to move.The cash was not spent during the 12 months following contribution.The contribution results in

Which of the following is an advantage of a sole proprietorship over other business forms?

Jane and Joe plan to go into business together.They plan to incorporate the business.What tax issues should they consider when deciding whether or not to elect S corporation status? • Are their individual marginal tax rates lower or higher than a C Corporation's marginal tax rates? • Do they anticipate profits or losses in the first few years of business? • Will the corporation generate any capital gains or losses? • Do they plan to withdraw money from the corporation? • Will they want or need fringe benefits? • Do they plan to use a calendar year end or a fiscal year end?

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?

The tax disadvantages of the C corporation form of doing business include "double taxation." What is meant by the term "double taxation" as used in this context?

Phil and Nick form Philnick Corporation.Phil exchanges cash and other property for 900 shares (90% of the outstanding shares)of Philnick stock.Nick performs accounting services in exchange for 100 shares of Philnick stock worth $10,000.What are the tax consequences from forming the Philnick Corporation to Phil and Nick?

On April 2 of the current year,Jana transfers land with a basis of $140,000 and a fair market value of $120,000 to Amish Corporation in exchange for all of its stock.She had originally acquired the land on December 1,2002.What tax issues arise from the exchange?

Darnell,who is single,exchanges property having a $60,000 adjusted basis and a $50,000 FMV for 1,000 shares of Fox Corporation stock in a transaction qualifying under Sec.351.The stock qualifies as Sec.1244 stock.If Darnell sells his stock for $30,000,what is the amount and character of his recognized gain or loss?

Dan transfers property with an adjusted basis of $50,000 and an FMV of $100,000 to a newly formed Sun Corporation in exchange for 500 shares of Sun stock,which is one-half of the outstanding Sun stock.His daughter,Sylvia,transfers property with an adjusted basis of $25,000 and an FMV of $50,000 for the other 500 shares at the same time.What are the tax consequences of the two transfers,assuming all the requirements of Sec.351 are met?

Identify which of the following statements is true.

Identify which of the following statements is true.

This year,John,Meg,and Karen form Frost Corporation.John contributes land purchased as an investment four years ago for $25,000 that has a $30,000 FMV in exchange for 30 shares of Frost stock.Meg contributes machinery (Sec.1251 property)purchased four years ago and used in her business having a $50,000 adjusted basis and a $30,000 FMV in exchange for 30 shares of Frost stock.Karen contributes services worth $15,000 and $5,000 cash in exchange for 20 shares of Frost stock. a)What is the amount of John's recognized gain or loss? b)What is John's basis in his Frost shares? When does his holding period begin? c)What is the amount of Meg's recognized gain or loss? d)What is Meg's basis in her Frost shares? When does her holding period begin? e)How much income,if any,must Karen recognize? f)What is Karen's basis in her Frost shares? When does her holding period begin? g)What is Frost Corporation's basis in the land and the machinery? When does its holding period begin? How does Frost Corporation treat the amount paid to Karen for services?

Identify which of the following statements is true.

Carolyn transfers property with an adjusted basis of $50,000 and an FMV of $60,000 in exchange for Prime Corporation stock in a Sec.351 transaction.Carolyn's basis in the stock is

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