Four Shareholders Form a New Corporation in Exchange for Stock

question 2

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.What is Benjamin's realized and recognized gain, respectively?

• A)$5,000, $20,000
• B)$10,000, $15,000
• C)$15,000, $10,000
• D)$20,000, $5,000

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Definitions:

Zamboni

A machine that cleans and smooths the ice surface of a skating rink.

Shavings

Thin slices or particles that have been sliced or pared off from something, typically wood or metal.

Ambassador's

Relating to an ambassador, who is an accredited diplomat sent by a country as its official representative to a foreign country.

Announcer's

Pertaining to individuals who present or deliver information to the public, especially in broadcasting contexts like radio or television.