Max Transfers the Following Properties to a Newly Created Corporation

question 52

Multiple Choice

Max transfers the following properties to a newly created corporation for $90,000 of stock and $10,000 cash in a transaction that qualifies under Sec. 351. $$\begin{array} { | l | c | c | c | } \hline & \text { Asset One } & \text { Asset Two } & \text { Asset Three } \\\hline \text { FMV } & \$ 30,000 & \$ 45,000 & \$ 25,000 \\\text { Basis } & 35,000 & 40,000 & 20,000 \\\hline\end{array}$$ Max's recognized gain is

• A) $3,000.
• B) $5,000.
• C) $7,000.
• D) $10,000.

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Definitions:

Capital Components

The various sources of funding a company uses to finance its operations, including debt, equity, and any hybrid instruments.

Cost of Capital

The essential return needed to justify the investment in a capital budgeting project, like constructing a new manufacturing facility.

Market Value

Today's market rate for the purchase or sale of services or assets.

Flotation Cost

Costs a company faces when it issues new securities, encompassing fees for underwriting, legal services, registration, and printing.