FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 18: Corporations: Organization and Capital Structure

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Multiple Choice

Review LaterAdd Note

Review Later

Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100% of the stock in Camel.In the first year of operation,Camel has net taxable income of $70,000.If Camel distributes $50,000 to Adam:

A) Adam has taxable income of $50,000.
B) Camel Corporation has a tax deduction of $50,000.
C) Adam has no taxable income from the distribution.
D) Camel Corporation reduces its basis in the land to $150,000.
E) None of the above.

F) A) and E)
G) C) and D)

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

Tom and George form Swan Corporation with the following investments: Tom transfers machinery worth $100,000 (basis of $40,000) ,while George transfers land worth $90,000 (basis of $20,000) and services rendered in organizing the corporation worth $10,000.Each is issued 25 shares in Swan Corporation.With respect to the transfers:

A) Tom has no recognized gain; George recognizes gain/income of $80,000.
B) Neither Tom nor George recognizes gain or income.
C) Swan Corporation has a basis of $30,000 in the land.
D) George has a basis of $30,000 in the shares of Swan Corporation.
E) None of the above.

F) None of the above
G) B) and C)

Correct Answer

verified

Show Answer

Question 23

Multiple Choice

Review LaterAdd Note

Ann transferred land worth $200,000,with a tax basis of $40,000,to Brown Corporation,an existing entity,for 100 shares of its stock.Brown Corporation has two other shareholders,Bill and Bob,each of whom holds 100 shares.With respect to the transfer:

A taxpayer transfers assets and liabilities to a corporation in return for its stock.If the liabilities exceed the basis of the assets transferred,the taxpayer will recognize gain to avoid having a negative basis in the stock.

To help avoid the thin capitalization problem,it is advisable to make the repayment of the debt contingent upon the corporation's earnings.

Robert organized Redbird Corporation 10 years ago by contributing property worth $3 million,basis of $550,000,for 2,000 shares of stock in Redbird,representing 100% of the stock in the corporation.Robert later gave each of his children,Brittany and Julie,600 shares of stock in Redbird Corporation.In the current year,Robert transfers property worth $700,000,basis of $150,000,to Redbird for 1,000 shares in the corporation.What gain,if any,will Robert recognize on the transfer?

Five years ago,Joe,a single taxpayer,acquired stock in a corporation that qualified as a small business corporation under § 1244,at a cost of $55,000.Joe wants to give his son,Jake,$15,000 to help finance Jake's college education.The stock is currently worth $15,000.Joe is considering selling the stock in the current year for $15,000 and giving the cash to Jake.As an alternative,Joe could give the stock to Jake and let Jake sell it for $15,000.Which alternative should Joe choose?

A secret process and patentable invention both constitute "property" for purposes of § 351.

Jane and Walt form Orange Corporation.Jane transfers equipment worth $475,000 (basis of $100,000) and cash of $25,000 to Orange Corporation for 50% of its stock.Walt transfers a building and land worth $525,000 (basis of $200,000) for 50% of Orange's stock and $25,000 cash.

When incorporating her sole proprietorship,Samantha transfers all of its assets and liabilities.Included in the $30,000 of liabilities assumed by the corporation is $500 that relates to a personal expenditure.Under these circumstances,the entire $30,000 will be treated as boot.

Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarah of $55,000; land by Tony (basis of $35,000 and fair market value of $45,000) .Dove Corporation issues 200 shares of stock,100 each to Sarah and Tony.Thus,each receives stock in Dove worth $50,000.

In order to encourage the development of its industrial park,Union County gives Darter Corporation land (fair market value of $800,000)and cash of $500,000.Within one year,Darter constructs a new plant at the site at a cost of $1,200,000.

When Pheasant Corporation was formed under § 351,Kristen transferred property (basis of $26,000 and fair market value of $22,500) for § 1244 stock.Kristen's basis in the Pheasant stock is $26,000.Three years later,Pheasant Corporation goes bankrupt and its stock becomes worthless.Kristen,who is single,owned the stock as an investment.Kristen's loss is:

Stock in Merlin Corporation is held equally by Jane,Eve,and Fred.Merlin seeks additional capital to buy a valuable tract of land that will cost $6,000,000.Jane,Eve,and Fred propose to loan Merlin $2,000,000 each,taking from Merlin a $2,000,000 ten-year note with interest payable annually at five points above the prime rate.Merlin Corporation has current taxable income of $7,000,000.How are the payments on the notes treated for tax purposes?

The definition of property for purposes of § 351 includes unrealized receivables transferred by a cash basis taxpayer.

The receipt of nonqualified preferred stock in exchange for the transfer of appreciated property to a controlled corporation results in recognition of gain to the transferor.

If a corporation is thinly capitalized,all debt is reclassified as equity.

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.

Rick transferred the following assets and liabilities to Warbler Corporation. In return,Rick received $75,000 in cash plus 90% of Warbler Corporation's only class of stock outstanding (fair market value of $225,000) .

To ease a liquidity problem,all of the shareholders of Osprey Corporation contribute additional cash to its capital.Osprey has no tax consequences from the contribution.