Exam 2: Corporate Formations and Capital Structure

Martin operates a law practice as a sole proprietorship using the cash method of accounting.Martin incorporates the law practice and transfers the following items to a new,solely owned corporation. Adjusted Basis FMV Cash Equipment \ 10,000 \ 10,000 Accounts receivable 80,000 100,000 Accounts payable (deductible 0 120,000 expenses) 0 60,000 Note payable (on equipment) 50,000 50,000 Martin must recognize a gain of ________ and has a stock basis of ________:

Any losses on the sale of Section 1244 stock are ordinary.

Which of the following statements is incorrect?

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

Which of the following statements is incorrect?

Section 351 applies to an exchange if the contributing shareholders own more than 50% of a corporation's stock after the transfer.

Reba,a cash basis accountant,transfers all of the assets and liabilities of her practice to Able Corporation in exchange for all of Able Corporation's stock.The assets include $20,000 of accounts receivable.What is the Corporation's basis in the receivables? Will the corporation be taxed on the receivables,as they are collected?

Identify which of the following statements is true.

Which of the following is an advantage of a sole proprietorship over other business forms?

There are no tax consequences of a partnership converting to a C corporation.

Why would a transferor want to avoid the nonrecognition of gain under Sec.351? How can the nonrecognition provision of Sec.351 be avoided?

The assignment of income doctrine does not apply if the transferor in a Sec.351 exchange in which no gain is otherwise recognized transfers substantially all the assets and liabilities of the transferor's trade or business to the controlled corporation.

Mario and Lupita form a corporation in a transaction coming under Sec.351.Lupita transfers property with an adjusted basis of $150,000 and an FMV of $200,000 in exchange for one-half of the stock.The property has an $80,000 mortgage,which the corporation assumes.The corporation's basis in the property is

Identify which of the following statements is true.

Identify which of the following statements is true.

The transferor's holding period for any stock received in exchange for a capital asset

Lynn transfers land having a $50,000 adjusted basis,an $80,000 FMV,and $10,000 cash to Allied Corporation in exchange for 100% of Allied's stock.The corporation assumes the $70,000 mortgage on the land.Which of the following statements is correct?

Rose and Wayne form a new corporation.Rose contributes cash for 85% of the stock and Wayne contributes services for 15% of the stock.The tax effect is

The City of Springfield donates land worth $250,000 to Deuce Corporation to induce it to locate in Springfield and provide 1,000 jobs for its citizens.How much gross income must Deuce Corporation recognize because of the land contribution,and what is the land's basis to Deuce Corporation?

Barry,Dan,and Edith together form a new corporation; Barry and Dan each contribute property in exchange for stock.Within two weeks after the formation,the corporation issues additional stock to Edith in exchange for property.Barry and Dan each hold 10,000 shares and Edith will receive 9,000 shares.Which transactions will qualify for nonrecognition?