Question

1. Which of the following statements is correct?

a) Money is not included in the definition of property regarding §351 transaction.

b) Companies can choose to recognize gain or loss even though the requirements under §351 are met.

c) §351 transaction applies to partnership.

d) A shareholder who receives a boot under §351 must recognize the loss immediately.

e) None of the choices are true.

2. Francine incorporated her sole proprietorship by transferring property to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had a fair market value of $210,000 and a tax-adjusted basis of $190,000. The corporation also assumed a mortgage of $60,000 attached to the property. The fair market value of the corporation's stock received in the exchange was $150,000. Assume the transactions met the requirements under §351.

Which of the following statements is correct?

a) Francine realize $20,000 on the transfer of the property to her corporation.

b) Francine recognize $20,000 on the transfer of the property to her corporation.

c) Francine's basis in the stock she receives in her corporation is $190,000.

d) All of the choices are true.

e) None of the choices are true.

3. Regarding §351, which of the following statements is incorrect?

a) A shareholder receiving a stock in return for service cannot defer recognizing the gain.

b) A shareholder receiving a debt in return for contributing a property must recognize gain or loss immediately.

c) To meet the control test, shareholders who transfer property to a corporation must collectively own at least 80 percent of the corporation's voting stock and of each class of nonvoting stock right after the transfer.

d) To meet the control test, a shareholder who contributes both service and property must provide a property whose fair value is at least 10% of the fair value of service

e) All of the choices are true.

4. Ken and Jim formed Oakland Company on January 2. Ken contributed cash of $450,000 in return for 50 percent of the corporation's stock. Jim contributed a property in return for 50 percent of the corporation's stock. The property Jim transferred to the corporation had a fair market value of $350,000 and a tax-adjusted basis of $200,000. To equalize the exchange, Oakland Company paid Jim $100,000 in addition to his stock.

Assuming the transactions met the requirements under §351, determine Jim's tax basis in the stock he receives in return for his contribution of property to the corporation.

a) $200,000.

b) $250,000.

c) $50,000.

d) $350,000.

e) $150,000.

Answer 1

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