FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 12: Corporations: Organization,capital Structure,and Operating Rules

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

True/False

Review LaterAdd Note

Review Later

In a § 351 transfer,a shareholder receives boot of $10,000 but ends up with a realized loss of $3,000.Only $7,000 of the boot will be taxed to the shareholder.

A) True
B) False

Correct Answer

verified

False

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

Leah transfers equipment (basis of $400,000 and fair market value of $500,000) for additional stock in Crow Corporation.After the transfer,Leah owns 80% of Crow's stock.Associated with the equipment is § 1245 depreciation recapture potential of $70,000.As a result of the transfer:

A) Leah recognizes ordinary income of $70,000.
B) The § 1245 depreciation recapture potential carries over to Crow Corporation.
C) The § 1245 depreciation recapture potential disappears.
D) Leah recognizes ordinary income of $70,000 and § 1231 gain of $30,000.
E) None of the above.

F) A) and D)
G) None of the above

Correct Answer

verified

Show Answer

Question 3

True/False

Review LaterAdd Note

To ease a liquidity problem,all of the shareholders of Osprey Corporation contribute additional cash to its capital.Osprey has no tax consequences from the contribution.

On December 31,2015,Flamingo,Inc. ,a calendar year,accrual method C corporation,accrues a bonus of $50,000 to its president (a cash basis taxpayer),who owns 75% of the corporation's outstanding stock.The $50,000 bonus is paid to the president on February 2,2016.For Flamingo's 2015 Form 1120,the $50,000 bonus will be a subtraction item on Schedule M-1.

Donald owns a 45% interest in a partnership that earned $130,000 in the current year.He also owns 45% of the stock in a C corporation that earned $130,000 during the year.Donald received $20,000 in distributions from each of the two entities during the year.With respect to this information,Donald must report $78,500 of income on his individual income tax return for the year.

Pablo,a sole proprietor,sold stock held as an investment for a $40,000 long-term capital gain.Pablo's marginal tax rate is 33%.Loon Corporation,a C corporation,sold stock held as an investment for a $40,000 long-term capital gain.Loon's marginal tax rate is 35%.What tax rates are applicable to these capital gains?

Gabriella and Juanita form Luster Corporation.Gabriella transfers cash of $50,000 for 50 shares of stock,while Juanita transfers information concerning a proprietary process (basis of zero and fair market value of $50,000) for 50 shares of stock.

Ruth transfers property worth $200,000 (basis of $60,000)to Goldfinch Corporation.In return,she receives 80% of its stock (worth $180,000)and a long-term note,executed by Goldfinch and made payable to Ruth (worth $20,000).Ruth will recognize no gain on the transfer.

If both §§ 357(b)and (c)apply to the same transfer (i.e. ,the liability is not supported by a bona fide business purpose and also exceeds the basis of the properties transferred),§ 357(c)predominates.

Penny,Miesha,and Sabrina transfer property to Owl Corporation for 75% of its stock.Nancy,their attorney,receives 25% of the stock in Owl for legal services rendered in incorporating the business.What are the tax consequences of these transactions? How should this transaction have been handled?

Carol and Candace are equal partners in Peach Partnership.In the current year,Peach had a net profit of $75,000 ($250,000 gross income - $175,000 operating expenses)and distributed $25,000 to each partner.Peach must pay tax on $75,000 of income.

Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarah of $65,000;land by Tony (basis of $25,000 and fair market value of $35,000) .Dove Corporation issues 400 shares of stock,200 each to Sarah and Tony.Thus,each receives stock in Dove worth $50,000.

A person who performs services for a corporation in exchange for stock cannot be treated as a member of the transferring group even if that person also transfers some property to the corporation.

Because of the taxable income limitation,no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.

A taxpayer may never recognize a loss on the transfer of property in a transaction subject to § 351.

When a taxpayer transfers property subject to a mortgage to a controlled corporation in an exchange qualifying under § 351,the transferor shareholder's basis in stock received in the transferee corporation is increased by the amount of the mortgage on the property.

Similar to like-kind exchanges,the receipt of "boot" under § 351 can cause loss to be recognized.

Schedule M-2 is used to reconcile unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at the end of the year.

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.

Which of the following statements is incorrect regarding the taxation of C corporations?