Question 1. Sarah and Tony (mother and son) form Dove Corporation wit

1. Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarah of $65,000; land by Tony (basis of $25,000 and fair market value of $35,000). Dove Corporation issues 400 shares of stock, 200 each to Sarah and Tony. Thus, each receives stock in Dove worth $50,000.

a. Section 351 cannot apply since Sarah should have received 260 shares instead of only 200.

b. Section 351 may apply because stock need not be issued to Sarah and Tony in proportion to the value of the property transferred.

c. Tony’s basis in the stock of Dove Corporation is $50,000.

d. As a result of the transfer, Tony recognizes a gain of $10,000.

e. None of the above.

2. Rhonda and Marta form Blue Corporation. Rhonda transfers land (basis of $55,000 and fair market value of $180,000) for 50 shares plus $20,000 cash. Marta transfers $160,000 cash for 50 shares in Blue Corporation.

a. Rhonda’s basis in the Blue Corporation stock is $55,000.

b. Blue Corporation’s basis in the land is $55,000.

c. Blue Corporation’s basis in the land is $180,000.

d. Rhonda recognizes a gain on the transfer of $125,000.

e. None of the above.

3. Erica transfers land worth $500,000, basis of $100,000, to a newly formed corporation, Robin Corporation, for all of Robin’s stock, worth $300,000, and a 10­year note. The note was executed by Robin and made payable to Erica in the amount of $200,000. As a result of the transfer:

a. Erica does not recognize gain.

b. Erica recognizes gain of $400,000.

c. Robin Corporation has a basis of $100,000 in the land.

d. Robin Corporation has a basis of $300,000 in the land.

e. None of the above.

4. Hazel transferred the following assets to Starling Corporation.

In exchange, Hazel received 50% of Starling Corporation’s only class of stock outstanding. The stock has no established value. However, all parties believe that the value of the stock Hazel received is the equivalent of the value of the assets she transferred. The only other shareholder, Rick, formed Starling Corporation five years ago.

a. Hazel has no gain or loss on the transfer.

b. Starling Corporation has a basis of $48,000 in the machinery and $108,000 in the land.

c. Starling Corporation has a basis of $36,000 in the machinery and $144,000 in the land.

d. Hazel has a basis of $276,000 in the stock of Starling Corporation.

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