Four Shareholders Form a New Corporation in Exchange for Stock

question 18

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 the corporation's basis for the building it received from Emily?

• A)$10,000
• B)$15,000
• C)$20,000
• D)$35,000

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Definitions:

Moderate Risk

A level of risk that is considered to be within an acceptable range for investment or action, balancing potential loss against potential gain.

Sense of Order

The perception or arrangement of things in a methodical, organized manner, often leading to efficiency and ease of understanding.

Solitary Work

Tasks or activities performed independently without collaboration or interaction with others.

Trustworthiness

The quality of being reliable, honest, and capable of being trusted, often seen as a foundational element in successful relationships and transactions.