Exam 2: Corporate Formations and Capital Structure

Jermaine owns all 200 shares of Peach Corporation stock valued at $50,000.Kenya,a new shareholder,receives 200 newly issued shares from Peach Corporation in exchange for inventory with an adjusted basis of $40,000 and an FMV of $50,000.Which of the following statements is correct?

In which of the following independent situations is the Sec.351 control requirement met? a)Jane transfers property to Jet Corporation for 75% of Jet Corporation's stock,and Susan provides services to Jet Corporation for the remaining 25% of Jet Corporation stock. b)Paul transfers property to Pride Corporation for 60% of Pride's stock,and Bob transfers property worth $15,000 and performs services worth $25,000 for the remaining 40% of Pride's stock. c)Herb and his wife Carolyn each have owned 50% of the 100 outstanding shares of Wykert Corporation stock since it was formed three years ago.In the current year,their daughter,Cindy,transfers property to Wykert Corporation for 50 newly issued shares of Wykert stock. d)John and Pam develop a plan to form PJ Corporation on May 2 of this year.John transfers property worth $50,000 for 50 shares of PJ Corporation stock.As part of the single plan to incorporate,Pam transfers $50,000 cash for 50 shares of PJ Corporation stock on July 1. e)Assume the same facts as in Part (d),except that John has a prearranged plan to sell 30 of his shares to Steven on September 1.

Norman transfers machinery that has a $45,000 basis and a $105,000 FMV and $30,000 in money to Elnor Corporation in exchange for 50 shares of Elnor stock.The machinery,used in Norman's business,originally cost him $150,000 and is subject to a $84,000 liability which Elnor Corporation assumes.Kate exchanges $51,000 cash for the remaining 50 shares of Elnor stock. a)What is the amount and character of Norman's recognized gain or loss? b)What is his basis in the Elnor stock? c)What is Elnor's basis in the machinery? d)What is the amount and character of Kate's recognized gain or loss? e)What is Kate's basis in the Elnor stock? f)When do Norman and Kate's holding periods for their stock begin?