Jane and Walt form Orange Corporation.

344. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que44
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.

a. Jane recognizes a gain of $375,000; Walt recognizes a gain of $325,000.
b. Jane recognizes a gain of $25,000; Walt recognizes no gain.
c. Neither Jane nor Walt recognizes gain.
*d. Jane recognizes no gain; Walt recognizes a gain of $25,000.
e. None of the above.

345. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que45
Eve transfers property (basis of $120,000 and fair market value of $400,000) to Green Corporation for 80% of its stock (worth $350,000) and a long-term note (worth $50,000), executed by Green Corporation and made payable to Eve. As a result of the transfer:

a. Eve recognizes no gain.
b. Eve recognizes a gain of $230,000.
c. Eve recognizes a gain of $280,000.
*d. Eve recognizes a gain of $50,000.
e. None of the above.

346. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que46
Ann, Irene, and Bob incorporate their respective businesses and form Dove Corporation. Ann exchanges her property (basis of $100,000 and fair market value of $400,000) for 200 shares in Dove Corporation on March 1, 2009. Irene exchanges her property (basis of $140,000 and fair market value of $600,000) for 300 shares in Dove Corporation on April 11, 2009. Bob transfers his property (basis of $250,000 and fair market value of $1,000,000) for 500 shares in Dove Corporation on May 15, 2011. Bob’s transfer is not part of a prearranged plan with Ann and Irene to incorporate their businesses. What gain, if any, will Bob recognize on the transfer?

a. $1,000,000.
*b. $750,000.
c. $250,000.
d. $0.
e. None of the above.

347. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que47
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.

348. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que48
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. Ann has no recognized gain.
b. Brown Corporation has a basis of $160,000 in the land.
*c. Ann has a basis of $200,000 in her 100 shares in Brown Corporation.
d. Ann has a basis of $40,000 in her 100 shares in Brown Corporation.
e. None of the above.

349. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que49
Kevin and Nicole form Indigo Corporation with the following transfers: inventory from Kevin (basis of $360,000 and fair market value of $400,000) and improved real estate from Nicole (basis of $320,000 and fair market value of $375,000). Nicole, an accountant, agrees to contribute her services (worth $25,000) in organizing Indigo. The corporation’s stock is distributed equally to Kevin and Nicole. As a result of these transfers:

a. Indigo can deduct $25,000 as a business expense.
b. Nicole has a recognized gain of $55,000 on the transfer of the real estate.
*c. Indigo has a basis of $360,000 in the inventory.
d. Indigo has a basis of $375,000 in the real estate.
e. None of the above.

350. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que50
Tara incorporates her sole proprietorship, transferring it to newly formed Black Corporation. The assets transferred have an adjusted basis of $240,000 and a fair market value of $300,000. Also transferred was $10,000 in liabilities, $1,000 of which was personal and the balance of $9,000 being business related. In return for these transfers, Tara receives all of the stock in Black Corporation.

a. Black Corporation has a basis of $241,000 in the property.
b. Black Corporation has a basis of $240,000 in the property.
c. Tara’s basis in the Black Corporation stock is $241,000.
d. Tara’s basis in the Black Corporation stock is $249,000.
*e. None of the above.

351. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que51
Tim, a cash basis taxpayer, incorporates his sole proprietorship. He transfers the following items to newly created Wren Corporation.

	Adjusted	Fair Market
	Basis	Value
Cash	$ 20,000	$ 20,000
Building	110,000	160,000
Mortgage payable (secured by the building and held for
15 years)	135,000	135,000

With respect to this transaction:

a. Wren Corporation’s basis in the building is $110,000.
b. Tim has no recognized gain.
c. Tim has a recognized gain of $25,000.
*d. Tim has a recognized gain of $5,000.
e. None of the above.

352. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que52
Mary transfers a building (adjusted basis of $15,000 and fair market value of $90,000) to White Corporation. In return, Mary receives 80% of White Corporation’s stock (worth $65,000) and an automobile (fair market value of $5,000). In addition, there is an outstanding mortgage of $20,000 (taken out 15 years ago) on the building, which White Corporation assumes. With respect to this transaction:

*a. Mary’s recognized gain is $10,000.
b. Mary’s recognized gain is $5,000.
c. Mary has no recognized gain.
d. White Corporation’s basis in the building is $15,000.
e. None of the above.

353. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que53
Kim owns 100% of the stock of Cardinal Corporation. In the current year Kim transfers an installment obligation, tax basis of $30,000 and fair market value of $200,000, for additional stock in Cardinal worth $200,000.

*a. Kim recognizes no taxable gain on the transfer.
b. Kim has a taxable gain of $170,000.
c. Kim has a taxable gain of $180,000.
d. Kim has a basis of $200,000 in the additional stock she received in Cardinal Corporation.
e. None of the above.

354. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que54
Sarah and Emily form Red Corporation with the following investments: Sarah transfers computers worth $200,000 (basis of $80,000), while Emily transfers real estate worth $180,000 (basis of $40,000) and services (worth $20,000) rendered in organizing the corporation. Each is issued 600 shares in Red Corporation. With respect to the transfers:

a. Sarah has no recognized gain; Emily recognizes income/gain of $160,000.
b. Neither Sarah nor Emily recognizes gain or income.
c. Red Corporation has a basis of $60,000 in the real estate.
*d. Emily has a basis of $60,000 in the shares of Red Corporation.
e. None of the above.

355. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que55
Wade and Paul form Swan Corporation with the following investments. Wade transfers machinery (basis of $40,000 and fair market value of $100,000), while Paul transfers land (basis of $20,000 and fair market value of $90,000) and services rendered (worth $10,000) in organizing the corporation. Each is issued 25 shares in Swan Corporation. With respect to the transfers:

a. Wade has no recognized gain; Paul recognizes income/gain of $80,000.
b. Neither Wade nor Paul has recognized gain or income on the transfers.
c. Swan Corporation has a basis of $30,000 in the land transferred by Paul.
*d. Paul has a basis of $30,000 in the 25 shares he acquires in Swan Corporation.
e. None of the above.

356. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que56
Rick transferred the following assets and liabilities to Warbler Corporation.

	Adjusted	Fair Market
	Basis	Value
Building	$210,000	$225,000
Equipment	45,000	75,000
Trucks	15,000	30,000
Mortgage (held for four years) on building	30,000	30,000

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).

*a. Rick has a recognized gain of $60,000.
b. Rick has a recognized gain of $75,000.
c. Rick’s basis in the stock of Warbler Corporation is $270,000.
d. Warbler Corporation has the same basis in the assets received as Rick does in the stock.
e. None of the above.

357. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que57
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.

a. Section 351 cannot apply since Sarah should have received 110 shares instead of only 100.
b. As a result of the transfer, Tony recognizes a gain of $10,000.
c. Tony’s basis in the stock of Dove Corporation is $50,000.
*d. Section 351 may apply because stock need not be issued to Sarah and Tony in proportion to the value of the property transferred.
e. None of the above.

358. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que58
Hunter and Warren form Tan Corporation. Hunter transfers equipment (basis of $210,000 and fair market value of $180,000) while Warren transfers land (basis of $15,000 and fair market value of $150,000) and $30,000 of cash. Each receives 50% of Tan’s stock. As a result of these transfers:

a. Hunter has a recognized loss of $30,000; Warren has a recognized gain of $135,000.
*b. Neither Hunter nor Warren has any recognized gain or loss.
c. Hunter has no recognized loss; Warren has a recognized gain of $30,000.
d. Tan Corporation has a basis in the land of $45,000.
e. None of the above.

359. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que59
Erica transfers land worth $500,000, basis of $100,000, to a newly formed corporation, Robin Corporation, for all of Robin’s stock, worth $300,000, and a 10-year note. The note was executed by Robin and made payable to Erica in the amount of $200,000. As a result of the transfer:

a. Erica does not recognize gain.
b. Erica recognizes gain of $400,000.
c. Robin Corporation has a basis of $100,000 in the land.
*d. Robin Corporation has a basis of $300,000 in the land.
e. None of the above.

360. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que60
Kathleen transferred the following assets to Mockingbird Corporation.

	Adjusted	Fair Market
	Basis	Value
Cash	$100,000	$100,000
Equipment	48,000	36,000
Land	108,000	144,000

In exchange, Kathleen received 40% of Mockingbird Corporation’s only class of stock outstanding. The stock has no established value. However, all parties sincerely believe that the value of the stock Kathleen received is the equivalent of the value of the assets she transferred. The only other shareholder, Rick, formed Mockingbird Corporation five years ago.

a. Kathleen has no gain or loss on the transfer.
b. Mockingbird Corporation has a basis of $48,000 in the equipment and $108,000 in the land.
c. Kathleen has a basis of $256,000 in the stock of Mockingbird Corporation.
*d. Mockingbird Corporation has a basis of $36,000 in the equipment and $144,000 in the land.
e. None of the above.

361. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que61
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.

a. Dawn has a gain on the transfer of $15,000.
b. The basis of the assets to the corporation is $300,000.
*c. Dawn has a basis of $10,000 in the stock she receives.
d. Dawn has a zero basis in the stock she receives.
e. None of the above.

362. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que62
Carl transfers land to Cardinal Corporation for 90% of the stock in Cardinal Corporation worth $20,000 plus a note payable to Carl in the amount of $40,000 and the assumption by Cardinal Corporation of a mortgage on the land in the amount of $100,000. The land, which has a basis to Carl of $70,000, is worth $160,000.

a. Carl will have a recognized gain on the transfer of $90,000.
b. Carl will have a recognized gain on the transfer of $30,000.
c. Cardinal Corporation will have a basis in the land transferred by Carl of $70,000.
d. Cardinal Corporation will have a basis in the land transferred by Carl of $160,000.
*e. None of the above.

363. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que63
Kirby and Helen form Red Corporation. Kirby transfers property, basis of $20,000 and value of $300,000, for 100 shares in Red Corporation. Helen transfers property, basis of $40,000 and value of $280,000, and provides legal services in organizing the corporation. The value of her services is $20,000. In return Helen receives 100 shares in Red Corporation. With respect to the transfers:

a. Kirby will recognize gain.
b. Helen will not recognize any gain or income.
c. Red Corporation will have a basis of $280,000 in the property it acquired from Helen.
d. Red will have a business deduction of $20,000.
*e. None of the above.

364. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que64
Joe and Kay form Gull Corporation. Joe transfers cash of $250,000 for 200 shares in Gull Corporation. Kay transfers property with a basis of $50,000 and fair market value of $240,000. She agrees to accept 200 shares in Gull Corporation for the property and for providing bookkeeping services to the corporation in its first year of operation. The value of Kay’s services is $10,000. With respect to the transfer:

a. Gull Corporation has a basis of $240,000 in the property transferred by Kay.
b. Neither Joe nor Kay recognizes gain or income on the exchanges.
*c. Gull Corporation has a business deduction under § 162 of $10,000.
d. Gull capitalizes $10,000 as organizational costs.
e. None of the above.

365. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que65
Earl and Mary form Crow Corporation. Earl transfers property, basis of $200,000 and value of $1,600,000, for 50 shares in Crow Corporation. Mary transfers property, basis of $80,000 and value of $1,480,000, and agrees to serve as manager of Crow for one year; in return Mary receives 50 shares of Crow. The value of Mary’s services is $120,000. With respect to the transfers:

a. Mary will not recognize gain or income.
b. Earl will recognize a gain of $1,400,000.
c. Crow Corporation has a basis of $1,480,000 in the property it received from Mary.
*d. Crow will have a business deduction of $120,000 for the value of the services Mary will render.
e. None of the above.

366. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que66
Four individuals form Chickadee Corporation under § 351. Two of these individuals, Jane and Walt, made the following contributions:

	Adjusted	Fair Market
	Basis	Value
From Jane—
Cash	$360,000	$360,000
Patent	–0–	40,000
From Walt—
Equipment (depreciation claimed of $100,000)	240,000	370,000

Both Jane and Walt receive stock in Chickadee Corporation equal to the value of their investments.

a. Jane must recognize income of $40,000; Walt has no income.
*b. Neither Jane nor Walt recognize income.
c. Walt must recognize income of $130,000; Jane has no income.
d. Walt must recognize income of $100,000; Jane has no income.
e. None of the above.

367. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que67
Leonard transfers equipment (basis of $40,000 and fair market value of $100,000) for additional stock in Green Corporation. After the transfer, Leonard owns 90% of the stock. Leonard had claimed depreciation of $50,000 on the equipment prior to transferring it to Green Corporation. With respect to the transfer:

a. Leonard has ordinary income of $50,000.
b. Leonard has ordinary income of $50,000 and a § 1231 gain of $10,000.
c. Green Corporation has ordinary income of $50,000.
d. Green Corporation has a basis of $40,000 in the equipment and it will have no depreciation recapture if it later disposes of the equipment in a taxable transaction.
*e. None of the above.

368. CHAPTER 4—CORPORATIONS: ORGANIZATION AND CAPITAL STRUCTURE Que68
In order to induce Yellow Corporation to build a new manufacturing facility in Knoxville, Tennessee, the city donates land (fair market value of $400,000) and cash of $100,000 to the corporation. Several months after the donation, Yellow Corporation spends $450,000 (which includes the $100,000 received from Knoxville) on the construction of a new plant located on the donated land.

a. Yellow recognizes income of $100,000 as to the donation.
b. Yellow has a zero basis in the land and a basis of $450,000 in the plant.
c. Yellow recognizes income of $500,000 as to the donation.
*d. Yellow has a zero basis in the land and a basis of $350,000 in the plant.
e. None of the above.