Cynthia is a successful sculptor who created a work that is now worth $400,000 and hasno tax basis. Cynthia forms a corporation and contributes the sculpture to it in exchangefor the corporation's shares. Fourteen months later, she sells all the stock for $400,000.She wants to treat the sale of the stock as a long-term capital gain. Evaluate the proprietyof Cynthia's actions.

Approach to Solving the Question:Consider what Cynthia has done and appraise the importance of the…

Answered: Cynthia is a successful sculptor who…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Sadie sold 11 shares of stock to her brother, George, for $600 sixteen months ago. Sadie had purchased the stock for $800 two years earlier. If George sells the stock for $1,000 what is the amount and character of his recognized gain or loss in the current year?
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Sam and Devon agree to go into business together selling college-licensed clothing. According to the agreement, Sam will contribute inventory valued at $146,000 in return for 80 percent of the stock in the corporation. Sam's tax basis in the inventory is $79,000. Devon will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualify as organizational expenditures). The accounting services are valued at $36,500. (Negative amount should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.) d. What is Devon's tax basis in the stock he receives in return for his contribution of services to the corporation? Tax basis
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