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Exam 13: Corporate Formations and Operations

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Question 71

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Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in exchange for stock with a fair market value of $3,000 and $2,000 cash in a transaction that qualifies as a section 351 transfer. The corporation assumed a liability of $1,000 on the property transferred. What is Sybil's tax basis in the stock received in the exchange?

A) $6,000
B) $5,000
C) $4,000
D) $3,000

E) All of the above
F) A) and B)

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Question 72

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In the current year, Auto Rent Corporation reported the following taxable income at the end of its first, second, and third quarters: $\begin{array} { | l | r | } \hline \text { Fair market value of stock received } & \$ 400,000 \\\hline \text { Cash received trom Paper Lilies } & 50,000 \\\hline \text { Amount realiz ed } & \$ 450,000 \\\hline \text {-Adjusted tax basis of the property transterred } & 200,000 \\\hline \text { Gain realized } & \$ 250,000 \\\hline\end{array}$ What amount of estimated tax payments would Auto Rent pay each quarter in order to avoid estimated tax penalties under the annualized income method of computing estimated tax payments?

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First quarter $510,000; ($1,500,000 × 4 ...

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Question 73

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Sami transferred property with a fair market value of $600 and a tax basis of $300 to a corporation in exchange for stock with a fair market value of $600. In addition, Sami received stock with a fair market value of $50 in exchange for services she provided to the corporation in the incorporation process. Which of the following statements best describes the tax result to Sami as a result of the exchanges?

In the current year, FurnitureKing Corporation recognized $32,000 of income from an installment sale it made in a previous tax year. If installment sales are the only difference between ACE and alternative minimum taxable income (before the ACE adjustment) , what is the amount and nature of the ACE adjustment for the current tax year?

Corporations are allowed to deduct at least some AMT exemption regardless of profitability.

Which of the following is not an AMT adjustment?

Urban Corporation receives tax-exempt income from Denver municipal bonds. All the proceeds from the bonds were used to fund public projects. In computing its AMT base, Urban must add back the interest income from its municipal bonds to taxable income.

Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $400 and $50 cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is Roy's tax basis in the stock received in the exchange?

Rapidpro Inc. had more than $1,000,000 of taxable income two years prior to the current year. It would like to use its prior year tax liability (which was very low but above zero) to determine its quarterly estimated payments this year. Which of the following statements is true?

Which of the following statements regarding incentive stock options (ISOs) is false?

Small corporations (in terms of average annual gross receipts) are exempt from the alternative minimum tax.

Which of the following describes the correct treatment of incentive stock options (ISOs) ?

Accrual-method corporations are not allowed to deduct charitable contributions unless they actually make payment to the charity by year end.

Carbonfab Manufacturers Inc. expensed $125,000 of depreciation for book purposes, but for tax purposes, it deducted $179,000. Carbonfab also sold equipment for $500,000. The book adjusted basis of the equipment sold was $350,000, while the adjusted basis for tax purposes was $210,000. What is the total book-tax difference associated with depreciation and the gain on sale? Is it favorable or unfavorable? What amount of the book-tax difference is permanent and what amount is temporary?

For incentive stock options, the value of the options that is expensed as compensation in a given year creates a permanent, unfavorable book-tax difference.

The dividends received deduction is designed to mitigate the extent to which corporate earnings are subject to more than two levels of taxation.

Corporations can carry net operating losses back two years and forward 20 years.

ValuCo gives you the following information: $\begin{array} { | l | r | } \hline \text { Tax basis of property transterred } & \$ 200,000 \\\hline \text { Gain rec ognized } & 50,000 \\\hline \text { Less boot received } & ( 50,000 ) \\\hline \text {-Adjusted tax basis of the stock received } & 200,000 \\\hline\end{array}$ What is its ACE adjustment for the year? Is it favorable or unfavorable?

Which of the following class of stock is not allowed to be used in a section 351 transaction?