Grand Corporation Transfers 40% of Its Assets Having an Adjusted

question 48

Multiple Choice

Grand Corporation transfers 40% of its assets having an adjusted basis of $600,000 and an FMV of $800,000 to New Corporation in exchange for 75% of its single class of stock. Grand Corporation is owned equally by Annie and Betsy who are unrelated. Annie's basis for her Grand stock is $300,000 and Betsy's basis is $400,000. Annie exchanges all of her Grand stock for all of the New stock received in the exchange. Which of the following statements is correct concerning these transactions?

• A)Grand Corporation does not recognize a gain on the asset transfer to New Corporation or the stock distribution to Annie.
• B)Annie recognizes a $500,000 capital gain on the exchange of the Grand stock for the New stock.
• C)Annie's basis in the New stock is $300,000.
• D)Grand's basis for the New assets is $600,000.

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Definitions:

Motion Picture

Another term for a movie or film, a sequence of images displayed rapidly to create the illusion of motion.

Test Statistic

A value calculated from sample data that is used in a hypothesis test to determine whether to reject the null hypothesis.

Rejection Region

The range of values for which the null hypothesis is considered not probable and is therefore rejected in a hypothesis test.

Sign Test

A nonparametric test used to determine if there is a difference between matched or paired observations.