Question 35 Dicky, Bev and Mollie form Murphy Corporation. Dicky transfers land

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Question 35

Dicky, Bev and Mollie form Murphy Corporation. Dicky transfers land worth $80,000 (adjusted basis is $25,000) for 80 shares, Mollie transfers $40,000 cash for 40 shares and Bev transfers equipment worth $40,000 (adjusted basis is $16,000) and $40,000 of services for 80 shares. Bev’s tax consequences are:

A.         $64,000 recognized gain; basis in 80 shares of $80,000

B.         $40,000 recognized gain; basis in 80 shares of $56,000

C.          $24,000 recognized gain; basis in 80 shares of $40,000

D.             $0 recognized gain; basis in 80 shares of $16,000

Question 36

Jane Smith owns 85 percent of Smith Sisters Company, Inc. On March 8, 2014, Jane contributed land to the firm. Her adjusted basis in the land was $60,000 and its fair market value on March 8 was $140,000. Jane Smith did not receive anything in return for the contribution. As a result of this transaction, Smith Sisters Company, Inc. will:

A. recognize a gain of $80,000 and will take a basis in the land of $80,000.

B. recognize a gain of $140,000 and will take a basis in the land of $140,000.

C. not recognize a gain and will take a basis in the land of $60,000.

D. not recognize a gain and will take a basis in the land of $140,000.

Question 37

Paula receives a liquidating distribution from Pell Corporation as part of a redemption of all of its stock. Paula’s basis for her Pell stock is $10,000. In exchange for her stock, Paula receives property with an $8,000 basis and a $15,000 fair market value that is subject to a $2,000 mortgage, and also receives cash of $5,000. How much is Paula’s recognized gain?

A. $12,000.

B. $10,000.

C. $8,000.

D. $0.

Explanation / Answer

Question 3

C.          $24,000 recognized gain; basis in 80 shares of $40,000

Bev transfers equipment worth $40,000 (adjusted basis is $16,000)  and $40,000 of services for 80 sharyes but he doesnot get any money for rendering of services as the services given in the lieu of payment of shares-

Transfer price of Equipment $40000

Less: Cost price $16000

Gain on Transfer (A) $24000

Gain on Services given (B) 0

(as no amount received for renderend of services)

Total Gain on Transfer $24000

(A)+ (B)

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