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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Bruno, an individual, is the sole shareholder of Green Corporation. On January 1, 2019, Bruno decided to liquidate Green Corporation. At the date of liquidation, Green Corporation had assets with a FMV of $2,500,000 and a basis of $1,800,000. Green Corporation’s earnings and profits at the date of liquidation were $2,000,000. Bruno’s basis in Green Corporation stock is $900,000. 1. What tax impact does the liquidation have on Green Corporation? 2. What tax impact does the liquidation have on Bruno (Assume tax rate of 23.8%) 3. How would your answer change if Bruno was a C-Corporation instead of an individual?
Acme Corporation is liquidated with Joe, sole shareholder, receiving property having an adjusted basis of $70,000 and an FMV of $100,000. Joe's basis in the Acme stock surrendered is $60,000. Describe the tax consequences to Joe and Acme as a result of the liquidation. Please explain step by step so I can understand the concepts, not just an answer.
Alabama Corporation, an S corporation, liquidates this year by distributing a parcel of land to its sole shareholder, Mark Ingram. The fair market value of the parcel is $58,500, and its tax basis is $36,000. Mark's basis in his stock is $29,500. d. Assume the fair market value of the land is $25,000 rather than $58,500. How much gain must Mark recognize (if any) as a result of the distribution, and what is his basis in the land? Land Basis
Which of the following is not a taxable corporation? A. Ryzelle, Ihanelle and Kiana agreed to contribute money into a common fund to engage in the business of buying and selling consumer goods. Their total investment amounts to P 300,000 and they did not bother to register their business with the DTI and the SEC. B. William, Robert and Roel, all certified public accountants, agreed to contribute their money, property and industry to a common fund with the sole intention of exercising their common profession. They have registered with the SEC. C. Hogwarts Bus Company and Angry Bird Bus Company owns separate franchises to operate a public utility covering the area of Northern Luzon. To achieve maximum efficiency in utilizing their assets and to avoid negative effects of competition, the two companies agreed to pool their resources together and operate as a single company. D. Ester and Rodrigo, lawyers and certified public accountant, respectively, agreed to contribute their money,…
Sandra would like to organize LAB (a legal corporation) as either an Scorporation or a C corporation for tax purposes. In either form, the entity isexpected to generate an 8 percent annual before-tax return on a $500,000investment. Sandra marginal income tax rate is 37 percent and her tax rateon qualified dividends and net capital gains is 20 percent. LAB income is notqualified business income (QBI), so Sandra is not allowed to claim the QBIdeduction. Assume that LAB will distribute all of its earnings after entity-leveltaxes every year. Ignore the additional Medicare tax and the net investmentincome tax when computing your answers. a. How much cash after taxes would Sandra receive from her investment inthe first year if LAB is organized as either an S corporation or a Ccorporation?
Lily is the sole shareholder of Crimson Corporation (a C corporation). At a time when Crimson has a deficit in accumulated E &Pof $90,000 and current E & P of $65,000, it distributes a cash dividend of S85,000. If Lily's basis in her stock is $15,000, what are the tax consequences of the distribution to Lily and Crimson?
Jakob sold a piece of land he owned to a corporation in which he is the sole shareholder using the provisions of ITA 85(1). The land is capital property, the ACB is $59,600, and it had a FMV of $198,000 at the time of the sale. The elected amount is $59,600. As consideration for the property, he received a promissory note for $30, 100, preferred shares with a FMV of $109,000, and common shares with a FMV of $59,600. Which one of the following is the ACB of the preferred shares (first) and the ACB of the common shares (second)? Round your answers to the nearest cent as needed. O A. $19,071.77 and $10,428.23 O B. Nil and $29,500.00 O C. $109,000.00 and $59,600.00 D. $29,500.00 and Nil
Danielle, a sole proprietor, was engaged in a service business and reported her income on a cash basis. Later, she incorporates her business and transfers the assets of the business to the corporation in return for all the stock in the corporation plus the corporation's assumption of the liabilities of her proprietorship. All the receivables and the unpaid trade payables are transferred to the newly formed corporation. The assets of the proprietorship had a basis of $105,000 and fair market value of $300,000. The trade accounts payable totaled $25,000. There was a note payable to the bank in the amount of $95,000 that the corporation assumes. The note was issued for the purchase of computers and other business equipment. a.Danielle has a basis of $10,000 in the stock she receives. b.The basis of the assets to the corporation is $300,000. c.Danielle has a zero basis in the stock she receives. d.Danielle has a gain on the transfer of $15,000.
Lily is the sole shareholder of Crimson Corporation (a C corporation). At a time when Crimson has a deficit in accumulated E & P of $90,000 and current E & P of $65,000, it distributes a cash dividend of $85,000. If Lily’s basis in her stock is $15,000, what are the tax consequences of the distribution to: a. Lily? b. Crimson Corporation?
Graham is the sole shareholder of Logan Corporation. For the past five years, Logan has reported little or no taxable income as a result of paying Graham a salary of $500,000 per year. During a recent IRS audit, the revenue agent determined that Graham’s educational and business experience, and his time devoted to managing Logan, 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. Required: Calculate the additional income tax liability for Logan as a result of this constructive dividend treatment. Assume Logan's marginal tax rate for the year in question was 34 percent. (Ignore any payroll tax consequences.) What are the tax consequences to Graham as a result of the constructive dividend treatment? Calculate the change in Graham’s income tax liability as a result of this change. Assume that Graham’s marginal tax rate on ordinary…
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