Accounting 334 – Fall 2016 Test #1
/100
Name _________________________
1) Jermaine owns all 200 shares of Peach Corporation stock valued at $50,000.
Kenya, a new shareholder, receives 200 newly issued shares from Peach
Corporation in exchange for inventory with an adjusted basis of $40,000 and an
FMV of $50,000. What kind of income does Kenya recognize? (5)
2) Barry, Dan, and Edith together form a new corporation; Barry and Dan each
contribute property in exchange for stock. Within two weeks after the formation,
the corporation issues additional stock to Edith in exchange for property. Barry
and Dan each hold 10,000 shares and Edith will receive 9,000 shares. Which
transactions will qualify for nonrecognition? (5)
3) Carmen and Marc form Apple Corporation. Carmen transfers land that is Sec.
1231 property, with an adjusted basis of $18,000 and an FMV of $20,000 in
exchange for one-half of the Apple Corporation stock. Marc transfers equipment
that originally cost $28,000 on which he has taken $5,000 in depreciation
deductions. The equipment has an FMV of $25,000 and he receives one-half of
the stock and a $5,000 short-term note. The transaction meets the requirements
of Sec. 351. What do Marc & Carmen Recognize? (5 points for Carmen, 5 for
Marc)
4) 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? (10)
5) 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? (5)
6) Trail Corporation has gross profits on sales of $140,000 and deductible expenses
of $180,000. In addition, Trail has a net capital gain of $60,000. Trail’s taxable
income is? (5)
7) Dallas Corporation, not a dealer in securities, realizes taxable income of $60,000
from the operation of its business. Additionally, in the same year, Dallas realizes
a long-term capital loss of $10,000 from the sale of marketable securities. If the
corporation realizes no other capital gains or losses, what is the proper
treatment for the $10,000 long-term capital loss on the tax return? (5)
8) Booth Corporation sells a building classified as a residential rental property for
$200,000. The MACRS straight-line depreciation taken is $20,000 and the
adjusted basis of the building is $170,000. Booth Corporation must recognize
ordinary income of? (10)
9) Green Corporation is incorporated on March 1 and begins business on June 1.
Green’s first tax year ends on October 31, i.e., a short year. Green incurs the
following expenses during the year:
Month
February
March
March
April
December
Type
Draft charter
Stock commission
Accounting fees to set up books
Temporary director fees
Charter modification fee
Amount
$ 2,000
30,000
2,000
2,000
1,000
What is the deduction for organizational expenses if Green chooses to deduct its costs as
soon as possible? (5)
10) In February of the current year, Brent Corporation donates computer equipment
that it purchased six months ago to Eastside High School for use in its
educational program. The donated property had a $20,000 adjusted basis to
Brent and a $40,000 FMV. What is the amount of the gift? (5)
11) Grant Corporation sells land (a noninventory item) with a basis of $57,000 for
$100,000. Nichole will be paid on an installment basis in five equal annual
payments, starting in the current year. The E&P for the year of sale will be
increased as a result of the sale (excluding federal income taxes) by? (5)
12) Poppy Corporation was formed three years ago. Poppy’s E&P history is as
follows:
Year
2005
2006
2007
Current E&P
$6,000
5,000
1,000
Distribution
s
$4,000
1,000
-0-
Poppy Corporation’s accumulated E&P on January 1 will be? (5)
13) Dixie Corporation distributes $31,000 to its sole shareholder, Sally. At the time of
the distribution, Dixie’s E&P is $25,000 and Sally’s basis in her Dixie stock is
$10,000. Sally’s basis in her Dixie stock after the distribution is? (5)
14) Crossroads Corporation distributes $60,000 to its sole shareholder Harley.
Crossroads has earnings and profits of $55,000 and Harley’s basis in her stock is
$20,000. After the distribution, Harley’s basis is? (5)
15) Exit Corporation has accumulated E&P of $24,000 at the beginning of the
current tax year. Current E&P is $20,000. During the year, the corporation
makes the following distributions to its sole shareholder who has a $22,000 basis
for her stock.
Date
April 1
June 1
August 1
November 1
Amount Distributed
$20,000
20,000
15,000
5,000
The treatment of the $15,000 August 1 distribution would be? (10)
16) Oreo Corporation has accumulated E&P of $8,000 at the beginning of the
current year. During the year (a nonleap year), the corporation incurs a current
E&P deficit of $18,250. The corporation distributes $11,000 on March 20th to
Morris, its sole shareholder, who has a $9,000 basis for his stock. If the exact
loss cannot be determined as of the date of distribution, the treatment of the
distribution will be? (5)
