Chapter C2 Corporate Formations and Capital Structure

43) Identify which of the following
statements is true.
A) To determine a shareholder’s basis in a
single class of stock received in a Sec. 351 exchange, the FMV of the stock
received must be known.
B) If more than one asset is transferred
by the transferor in a Sec. 351 nonrecognition transaction, the transferor is
assumed to have received a proportionate share of the stock, cash, and other
boot property for each property transferred based upon the assets’ relative
FMVs.
C) The transferor’s basis for any noncash
boot property received in a Sec. 351 transaction is the boot’s FMV reduced by
any unrecognized gain.
D) All of the above are false.

44) Identify which of the following
statements is true.
A) If stock and boot property are both
received in a Sec. 351 exchange, the transferor must allocate the total basis
in the contributed property between the stock and boot property based on the
relative FMVs of the stock and the boot property.
B) The adjusted basis of stock received in
a Sec. 351 transaction is computed by deducting the deferred loss from the FMV
of the stock received.
C) The holding period for stock received
in a Sec. 351 transaction in exchange for a capital asset begins on the day
after the date of the exchange.
D) All of the above are false.

45) Jerry transfers two assets to a
corporation as part of a Sec. 351 exchange. The first asset has an adjusted
basis of $70,000 and an FMV of $50,000. The second asset has an adjusted basis
of $70,000 and an FMV of $150,000. The FMV of the stock received is $180,000,
and he also receives $20,000 cash. The realized and recognized gain on the
second asset is
A) $80,000 realized; $20,000 recognized.
B) $80,000 realized; $15,000 recognized.
C) $20,000 realized; $10,000 recognized.
D) $10,000 realized; $10,000 recognized.

46) Max transfers the following properties
to a newly created corporation for $90,000 of stock and $10,000 cash in a
transaction that qualifies under Sec. 351.

Asset One

Asset Two

Asset Three

FMV
Basis

$30,000
35,000

$45,000
40,000

$25,000
20,000

Max’s recognized gain is
A) $3,000.
B) $5,000.
C) $7,000.
D) $10,000.

47) Cherie transfers two assets to a
newly-created corporation. The first asset has an adjusted basis of $40,000 and
a FMV of $50,000. The second asset has an adjusted basis of $35,000 and a FMV
of $25,000. Cherie receives stock with FMV of $66,000 and $9,000 cash. Cherie
must recognize a gain of
A) $10,000.
B) $6,000.
C) $5,000.
D) $4,000.

48) Henry transfers property with an
adjusted basis of $90,000 and an FMV of $100,000 to a newly-formed corporation
in a Sec. 351 exchange. Henry receives stock with an FMV of $80,000 and a
short-term note with a $20,000 FMV. Henry’s recognized gain is
A) $0.
B) $5,000.
C) $10,000.
D) $20,000.

49) Henry transfers property with an
adjusted basis of $95,000 and an FMV of $100,000 to a newly formed corporation
in a Sec. 351 exchange. Henry receives stock with an FMV of $85,000 and a
short-term note with a $15,000 FMV. Henry’s basis in the stock is
A) $100,000.
B) $95,000.
C) $90,000.
D) $85,000.

50) A shareholder’s basis in stock
received in a Sec. 351 transaction is
A) increased by the gain recognized by the
corporation.
B) decreased by the gain recognized by the
transferor.
C) decreased by liabilities assumed by the
corporation.
D) increased by the FMV of boot received
from the corporation.

51) Jeremy transfers Sec. 351 property
acquired three years earlier having a $100,000 basis and a $160,000 FMV to
Jeneva Corporation. Jeremy receives all 200 shares of Jeneva stock having a
$140,000 FMV, and a $20,000 90-day Jeneva note. What is Jeremy’s recognized
gain?
A) $0
B) $60,000
C) $20,000
D) $160,000

52) Carolyn transfers property with an
adjusted basis of $50,000 and an FMV of $60,000 in exchange for Prime
Corporation stock in a Sec. 351 transaction. Carolyn’s basis in the stock is
A) $60,000.
B) $50,000.
C) $10,000.
D) $0.