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Exam 2: Corporate Formations and Capital Structure

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Question 61

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Zoe Ann transfers machinery having a $36,000 adjusted basis and a $70,000 FMV for all 100 shares of Zeema Corporation's stock.Before the transfer, Zoe Ann used the machinery in her business.She originally paid $50,000 for the machinery and claimed $14,000 of depreciation before transferring the machinery.Zoe Ann recaptures no depreciation on the transfer and the recapture potential is transferred to Zeema Corporation.Zeema sells the machine for $66,000 after it had depreciated the machine an additional $4,000.What is Zeema's gain on the machine and what is its character?

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Zeema must recognize a $34,000...

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Question 62

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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.

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B) False

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Question 63

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Maria has been operating a business as a sole proprietorship for several years.She needs additional capital and wants to incorporate her business.The assets of her business (building, land, inventory, and so on)have a $400,000 adjusted basis and a $1.5 million FMV.Maria is willing to exchange the assets for 1,500 shares of Metro Corporation stock, each having a $1,000 FMV.Bill and John are each willing to invest $500,000 in Maria's business and will each receive 500 shares of stock.Why is Sec.351 important to Maria? Does it matter to Bill and John?

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

Nathan is single and owns a 54% interest in the new NT Partnership, a calendar-year entity.The NT Partnership reports $100,000 of profits for its first year.Assuming Nathan is taxed at a 35% marginal tax rate on the additional income, how much tax does Nathan owe if the NT Partnership does not distribute any of its profits to him?

Will, a shareholder in Wiley Corporation, lent money to the corporation.The corporation is unable to repay him.What tax issues should Will consider with respect to the loan?

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

Chris transfers land with a basis of $40,000 to Webb Corporation in exchange for 100% of Webb's stock.At the date of the transfer, the land had a $30,000 fair market value.Absent an election by Chris, Webb's basis in the land is

Silvia transfers to Leaf Corporation a machine she had purchased a year ago for $50,000.The machine has a $40,000 adjusted basis and an $55,000 FMV on the transfer date.$10,000 in depreciation was claimed by Silvia prior to the transfer.Silvia receives all 1,000 shares of Leaf Corporation stock worth $50,000 and a two-year note with a $5,000 FMV.What is the amount and character of the recognized gain or loss?

What is the impact on a transferor if a Sec.351 exchange involves the assumption of the shareholder's liabilities by the corporation?

Which of the following statements is true?

Discuss the IRS reporting requirements under Sec.351.

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

Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec.351 transaction.Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV.Ralph's basis in the stock is

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?

Identify which of the following statements is true.

Identify which of the following statements is true.

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

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

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?