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Exam 12: Corporate Formations and Operations

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Question 71

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Carlos transfers property with a tax basis of $500 and a fair market value of $800 to a corporation in exchange for stock with a fair market value of $650 and $50 cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $100 on the property transferred.What is the corporation's tax basis in the property received in the exchange?

A) $800.
B) $600.
C) $550.
D) $450.

E) A) and B)
F) All of the above

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Question 72

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Francine incorporated her sole proprietorship by transferring inventory,a building,and land to the corporation in return for 100 percent of the corporation's stock.The property transferred to the corporation had the following fair market values and tax bases. $\begin{array} { l r r r } & \text { FMV } & \text { Tax Basis } \\\text { Inventory } & \$ 30,000 & \$ 10,000 \\\text { Buildirin } & 130,000 & 80,000 \\\text { Land } & \underline {50,000} & \underline {100,000} \\\text { Total } & \underline {\$ 210,000 }& \underline {\$ 190,000}\end{array}$ The corporation also assumed a mortgage of $60,000 attached to the building and land.The fair market value of the corporation's stock received in the exchange was $150,000. a.What amount of gain or loss does Francine realize on the transfer of the property to her corporation? b.What amount of gain or loss does Francine recognize on the transfer of the property to her corporation? c.What is Francine's basis in the stock she receives in her corporation?

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a.$20,000 b.Francine does not recogniz...

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Question 73

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Large corporations (corporations with over $1,000,000 in taxable income in any of the three years prior to the current year)can use their prior tax year liability to determine all required estimated quarterly payments for the current year.

Which of the following statements regarding incentive stock options (ISOs) is false?

The dividends received deduction is designed to mitigate the extent to which corporate earnings are subject to more than two levels of taxation.

Imperial Construction Inc.(IC)issued 100,000 incentive stock options (ISOs)to its employees on December 31,2017 with an estimated value of $5.50 per option.The options vest at 25 percent per year for four years (beginning on December 31,2018).Each option allows the holder to purchase one share of stock at $8.On December 31,2018,employees exercised 12,500 options when IC's stock was valued at $14.72 per share.What is the amount of the book-tax difference in 2018 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent?

For incentive stock options,the value of the options that is expensed as compensation in a given year creates a permanent,unfavorable book-tax difference.

The City of Boston made a capital contribution of land to Fenway Company as an inducement to the company to build a manufacturing plant in the city.The land was valued at $500,000 at the time of the contribution.What gain,if any,does Fenway recognize on the contribution and what is Fenway's basis in the land?

Calendar-year corporations that request an extension for filing their tax returns will have a extended tax return due date of October 15.

For tax purposes,companies using nonqualified stock options deduct expenses in the year the options are exercised.

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing shareholder?

Which of the following statements regarding net operating losses is true?

Boston,Inc.made a capital contribution of investment property to its 100 percent-owned subsidiary,Hartford Company.The investment property had a fair market value of $1,000,000 and a tax basis to Boston of $250,000.What are the tax consequences to Boston,Inc.on the contribution of the investment property to Hartford Company and what is the tax basis of the investment property to Hartford Company after the contribution to capital?

Inez transfers property with a tax basis of $200 and a fair market value of $300 to a corporation in exchange for stock with a fair market value of $250 in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $50 on the property transferred.What is the corporation's tax basis in the property received in the exchange?

Which of the following class of stock is not allowed to be used in a section 351 transaction?