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chapter_4_solutions - 4-1 Chapter 4 Solutions Corporations...

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4-1 Chapter 4 Solutions Corporations: Organization & Capital Structure (2012) updated: August 8, 2011 26. a. $7,000 ordinary gain. b. $30,000 [$30,000 (basis of inventory) + $7,000 (gain recognized) – $7,000 (boot received)]. c. $37,000 [$30,000 (basis of inventory) + $7,000 (gain recognized)]. d. John recognizes gain of $9,000 (the amount of cash received). The gain is ordinary income because of the § 1245 depreciation recapture provisions. e. John has a basis of $55,000 in the Pine Corporation stock, computed as follows: $55,000 (basis in the equipment) + $9,000 (gain recognized) – $9,000 (boot received). f. Pine Corporation has a basis of $64,000 in the equipment, computed as follows: $55,000 (basis of the equipment to John) + $9,000 (gain recognized by John). g. Lucy has no recognized gain or loss. A secret process is property for purposes of § 351. h. Lucy has a basis of $25,000 in the Pine Corporation stock. i. Pine Corporation has a basis of $25,000 in the secret process. j. Sylvia has no gain or loss on the transfer. k. Sylvia has a basis of $30,000 in the Pine Corporation stock. pp. 4-3 to 4-13 and Figures 4.1 and 4.2 27. a. $0. b. $180,000. c. $140,000. d. $0. e. $264,000. f. $120,000 (basis in the equipment) and $4,000 (basis in the patent). g. The answers would not change. There is no requirement that the transferors receive the same type of stock. Further, both common stock and most preferred stock qualify as ‘‘stock.” However, if Gail received “nonqualified preferred stock,” her realized gain would be recognized because this type of preferred stock is treated as boot. h. The answers would not change. There is no requirement that the transferors be individuals. Example 2 and Figures 4.1 and 4.2
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4-2 30. Were Barbara’s and Alice’s transfers part of an integrated transaction? Was there an agreement between Barbara and Alice regarding the transfers? Because Alice is Barbara’s daughter, can her stock be attributed to Barbara in computing her stock ownership? p. 4-6 31. The general rule under § 351 also applies to transfers to an existing corporation. In this situation, Jaime has a taxable gain of $510,000 ($600,000 – $90,000). The exchange will not qualify under § 351 because Jaime does not have 80% control immediately following the transfer. Jaime has a basis of $600,000 in the stock, and Hummingbird Corporation has a basis of $600,000 in the property. Example 13 32. a. Ann does not recognize a gain. Bob recognizes ordinary income of $15,000, the value of the services he rendered to the corporation. Bob does not recognize gain on the transfer of property to the corporation. Examples 3 and 12 b. Ann has a basis of $150,000 in her stock, while Bob has a basis of $45,000 in his stock [$30,000 (basis in property transferred) + $15,000 (income recognized)]. Figure 4.1 c. Robin Corporation has a basis of $150,000 in the property Ann transferred and a basis of $30,000 in property Bob transferred. Robin Corporation capitalizes $15,000 as organizational expenditures. Figure 4.2 and Example 25 33. To be a member of the control group and aid in qualifying all transferors under the 80% test, a person contributing services must transfer property having more than a relatively small value in relation to the services performed. Stock issued for property of relatively small value compared
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