Four Shareholders Form a New Corporation in Exchange for Stock

question 5

Multiple Choice

Four shareholders form a new corporation in exchange for stock with a fair market value of $1,000 per share.Benjamin transfers investment land (current fair market value of $35,000) that he purchased 10 year ago for $15,000.In exchange, Benjamin receives 30 shares of stock and $5,000 cash.Andrew transfers a machine with a basis of $45,000 and a fair market value of $35,000.Andrew receives 30 shares of stock and $5,000 cash.Emily transfers a rental office building (current fair market value of $45,000) that she purchased 20 years ago for $60,000.Its current basis is $15,000 after recognition of $45,000 in depreciation expense.The corporation assumes the $20,000 balance on the original mortgage and Emily receives 25 shares of stock from the corporation in the exchange.Jackson provided the legal services to organize the corporation (value $5,000) and contributes $10,000 in cash in exchange for 15 shares of stock.How much gain does Emily recognize?

• A)0
• B)$5,000
• C)$15,000
• D)$20,000

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Definitions:

Histology

The science concerned with the microscopic structure of tissues and organs in relation to their physiological functions.

Surface Anatomy

The study and visualization of the external features of the body to understand the relationships with deeper structures.

Tissue

Groups of similar cells that perform a specific function in an organism.

Cells

The basic structural, functional, and biological units of all known living organisms, the building blocks of life.