1. Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100%
of the stock in Camel. In the first year of operation, Camel has net taxable income of
$70,000. If Camel distributes $50,000 to Adam: (Points : 5)
Adam has taxable income of $50,000.
Camel Corporation has a tax deduction of $50,000.
Adam has no taxable income from the distribution.
Camel Corporation reduces its basis in the land to $150,000.
2. Ten years ago, Connie purchased 4,000 shares in Platinum Corporation for $40,000. In
the current year, Connie receives a nontaxable stock dividend of 40 shares of Platinum
preferred. Values at the time of the dividend are: $8,000 for the preferred stock and $72,000
for the common. Based on this information, Connie's basis is: (Points : 5)
A. $40,000 in the common and $16,000 in the preferred.
B. $4,000 in the common and $136,000 in the preferred.
C. $36,000 in the common and $4,000 in the preferred.
D. $39,600 in the common and $400 in the preferred.
3. 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. (Points : 5)
A. Carl will have a gain on the transfer of $70,000.
B. Carl will have a gain on the transfer of $30,000.