Nancy contributed $50,000 of cash and land with a fair market value of $100,000 and an adjusted basis of $50,000 to Kale, Inc. (an S corporation) when it was formed. The land was encumbered by a $30,000 mortgage. What is Nacy's tax basis in Kale, Inc. after formation? (Assume the liability includes no personal indebtedness and that the control requirement is met for purposes of Sec. 351) Select one: OA. $40,000 OB. $70,000 O C. $100,000 O D. $150,000 A

Nancy contributed $50,000 of cash and land with a fair market value of $100,000 and an adjusted basis of $50,000 to Kale, Inc. (an S corporation) when it was formed. The land was encumbered by a $30,000 mortgage. What is Nacy's tax basis in Kale, Inc. after formation? (Assume the liability includes no personal indebtedness and that the control requirement is met for purposes of Sec. 351) Select one: OA. $40,000 OB. $70,000 O C. $100,000 O D. $150,000 A

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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Ron and Hermione formed Wizard Corporation on January 2. Ron contributed cash of $305,000 in return for 50 percent of the corporation's stock. Hermione contributed a building and land with the following fair market values and adjusted tax bases in return for 50 percent of the corporation's stock: (Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.) Adjusted Tax FMV Basis $ 114,375 266,875 $ 30,500 122,000 Building Land $ 381,250 $ 152,500 Total To equalize the exchange, Wizard Corporation paid Hermione $76,250 in addition to her stock. Assume Hermione's adjusted tax basis in the land was $305,000. g. What adjusted tax basis does Wizard Corporation take in the land and building received from Hermione? Land Building Adjusted tax basis
Alpesh
Hansaben
Kesha, a sole proprietor, is engaged in a cash basis service business. In the current year, she incorporates the business to form Kiwi Corporation. She transfers assets with a basis of $500,000 (fair market value of $1,200,000), a bank loan of $450,000 (which Kiwi assumes), and $80,000 in trade payables in return for all of Kiwi’s stock. What are the tax consequences of the incorporation of the business?
Carolina Corporation, an S corporation, has no corporate Earnings and profit from its years as a C corporation. At the end of the year, it distributes a small parcel of land to its sole shareholder, Shadiya. The fair market value of the parcel is $96,600, and its tax basis is $59,000. Shadiya's basis in her stock is $23,500. Assume Carolina Corporation reported $0 taxable income before considering the tax consequences of the distribution. Note: Leave no answer blank. Enter zero if applicable. d. Assume the fair market value of the land is $40,200 rather than $96,600. How much gain must Shadiya recognize (if any) as a result of the distribution, what is her basis in her Carolina Corporation stock after the distribution, and what is her basis in the land? Gain Recognized Stock Basis Land Basis
d
M is the sole shareholder of N Corporation. For the past five years, N has reported little or no taxable income as a result of paying M a salary of $500,000 per year. During a recent IRS audit, the revenue agent determined that M's educational and business experience, and his time devoted to managing N, justified a salary of only $200,000. Thus, the agent recharacterized $300,000 of the payments from the corporation as a dividend. Assume that all dividends are taxed to the individuals at a 20% tax rate. What are the annual tax savings to M as a result of the constructive dividend treatment? Calculate the change in M's income tax liability as a result of this change. Assume that M's marginal tax rate on ordinary income is 37 percent. (Ignore any payroll tax consequences.)
Rock Corporation distributed property with a fair market value of $100,000 and an adjusted basis of $70,000 to Ann, a shareholder of Rock Corporation. Prior to the distribution, Rock Corporation had a deficit in accumulated earnings and profits of $200,000 and current earnings and profits of $20,000. Ann has stock basis in Rock Corporations of $90,000. Assume that Ann is an individual in the 37% tax bracket. Determine Ann’s tax liability for this distribution.
The Abelinda Estate distributed some land, basis of $15,500 and fair market value of $18,000, to beneficiary Bartholomaus. The estate is subject to a 28% marginal income tax rate, and Bartholomaus is subject to a 32% marginal rate. What are the tax savings if the executor of the estate elects that the entity recognize the related realized gain? Please note that I came up with $125 & it is incorrect.
Ron and Hermione formed Wizard Corporation on January 2. Ron contributed cash of $305,000 in return for 50 percent of the corporation's stock. Hermione contributed a building and land with the following fair market values and adjusted tax bases in return for 50 percent of the corporation's stock: (Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.) Adjusted Tax Basis FMV $ 114,375 266,875 $ 30,500 122,000 Building Land $ 381,250 $ 152,500 Total To equalize the exchange, Wizard Corporation paid Hermione $76,250 in addition to her stock. a. What amount of gain or loss does Ron realize on the formation of the corporation? What amount, if any, does he recognize? Gain or loss realized Gain or loss recognized
Casey transfers property with a tax basis of $2,180 and a fair market value of $6,100 to a corporation in exchange for stock with a fair market value of $4,500 and $575 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $1,025 on the property transferred. Casey also incurred selling expenses of $391. What is the amount realized by Casey in the exchange?
During a recent IRS audit, the revenue agent decided that the Parker family used their closely held corporation, Falco, to avoid shareholder tax by accumulating earnings beyond the reasonable needs of the business. Falco’s taxable income was $880,000, it paid no dividends, and it had no business need to retain income. Falco's marginal tax rate in prior years was 34 percent. Assume the accumulated earnings tax rate is 20% for all applicable years in this problem. Required: Compute Falco’s accumulated earnings tax assuming that it had accumulated $4 million after-tax income in prior years. Assume that for these years at issue, a corporation is exempt up to $250,000 of accumulated earnings without demonstrating a reasonable business need for the accumulation. Compute Falco’s accumulated earnings tax assuming that it had accumulated $128,000 after-tax income in prior years. Assume that for these years at issue, a corporation is exempt up to $250,000 of accumulated earnings without…