Bob owns all 50 shares of max company valued at 50000

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Income Tax Fundamentals 2020
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Chapter 8 / Exercise 19
Income Tax Fundamentals 2020
Altus-Buller/Whittenburg
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23. Bob owns all 50 shares of Max Company, valued at $50,000. His friend, Lee, owns equipment worth $50,000. Lee’s adjusted basis in the equipment is $20,000. Lee transfers the equipment to Max Company in exchange for 50 shares. Lee has a: a. $30,000 realized and $30,000 recognized gain b. $30,000 realized and $0 recognized gain c. $0 realized and $0 recognized gain d. none of the above
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Income Tax Fundamentals 2020
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Chapter 8 / Exercise 19
Income Tax Fundamentals 2020
Altus-Buller/Whittenburg
Expert Verified
24. Dave formed Shull Company and transferred land ($100,000 fair market value; $40,000 adjusted basis) and equipment ($50,000 fair market value; $10,000 adjusted basis) in exchange for 100 shares of stock. Shull Company assumes the $45,000 mortgage on the land as part of the transfer. Dave’s tax consequences are: Recognized Gain Basis in 100 shares $0
25. Jenny Co. donated inventory with an adjusted basis of $50,000 and a $78,000 fair market value to a qualified public charity, which will use the inventory for the care of the ill and needy. It donates other inventory with an adjusted basis of $26,000 and a $40,000 fair market value to a qualified public charity that will not use the inventory for the care of the needy, ill, or infants (the donee is not an educational or research organization). What is Jenny Co.’s charitable deduction?
26. The amount of a cash dividend is independent of whether or not the shareholder is a corporation.
27. John Jergen’s stock basis is $3,000 and he has owned it for two years. If E&P is $4,000 and John receives a distribution of $12,000, the result is a dividend of $4,000, a return of capital of $3,000, and a long-term capital gain of $5,000. True/False
28. A shareholder receives a tax-free preferred stock dividend on her common stock. Subsequently, she sells both her common and preferred stock to her aunt. She will not have any dividend income.
29. When a tax-free right is received, the shareholder may be able to allocate basis to it from his stock, or it may simply have a zero basis.
30. A corporation must recognize a gain if it distributes property with a liability in excess of adjusted basis.
31. A distribution of nontaxable stock dividends does not reduce the corporation’s E&P. True/False
32. If a distribution qualifies as a partial liquidation then all shareholders receive sale or exchange treatment on the redemption.
33. A sale of Code Sec. 306 stock always results in ordinary income.
34. Unreasonable compensation is one type of constructive or disguised dividend.
35. A distribution by a corporation can never make its E&P negative. True/False
36. Arrow, Inc. has an accumulated defi cit of $3,000. This year it distributes $15,000 to its shareholders. How much of the amount is a dividend if the current year’s books reveal the following items: Taxable income $2,000 Proceeds from key-man life insurance $10,000 Interest from Iowa City bonds $5,000 Capital loss $4,000
c. $13,000 d. $2,000

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