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chapter_4_solution - 4-1 Chapter 4 Solutions Corporations...

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4-1 Chapter 4 Solutions Corporations: Organization & Capital Structure (2011) updated: September 8, 2010 26. a. $6,000 ordinary gain. b. $30,000 [$30,000 (basis of inventory) + $6,000 (gain recognized) – $6,000 (boot received)]. c. $36,000 [$30,000 (basis of inventory) + $6,000 (gain recognized)]. d. Carl recognizes gain of $9,000 (the amount of cash received). The gain is ordinary income because of the § 1245 depreciation recapture provisions. e. Carl has a basis of $45,000 in the Pine Corporation stock, computed as follows: $45,000 (basis in the equipment) + $9,000 (gain recognized) – $9,000 (boot received). f. Pine Corporation has a basis of $54,000 in the equipment, computed as follows: $45,000 (basis of the equipment to Carl) + $9,000 (gain recognized by Carl). g. Lucy has no recognized gain or loss. A secret process is property for purposes of § 351. h. Lucy has a basis of $15,000 in the Pine Corporation stock. i. Pine Corporation has a basis of $15,000 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 4-12 and Figures 4.1 and 4.2 27. a. $0. b. $190,000. c. $140,000. d. $0. e. $285,000. f. $125,000 (basis in the equipment) and $10,000 (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. Juan must recognize $325,000 of gain on the transfer [$400,000 (value of the shares received) – $75,000 (basis in the property transferred)]. The transfer does not qualify under § 351. Although Juan originally owned 100% of Loon Corporation, he only owns 66 2/3% after the transfer [2,000 (shares originally owned) – 1,000 (shares transferred to Julie and Rachel) + 1,000 (shares acquired in the transfer), or 2,000 shares of a total of 3,000 shares]. Julie and Rachel’s stock ownership cannot be counted because the stock attribution rules of § 318 (see Chapter 6) do not apply to a § 351 transfer. Example 12 32. a. The transfers will qualify under § 351. Vera’s stock is counted in determining control for purposes of § 351; thus, the transferors own 100% of the stock in Oriole. All of Vera’s stock, not just the shares received for the machinery, is considered in determining control because property she transferred has more than a nominal value in comparison to the value of the services rendered.
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