Brad Forms Vott Corporation by Contributing Equipment, Which Has a Basis

question 23

Multiple Choice

Brad forms Vott Corporation by contributing equipment, which has a basis of $50,000 and an FMV of $40,000 in exchange for Vott stock. Brad also contributes $5,000 in cash. If the transaction meets the Sec. 351 control and ownership tests, what are the tax consequences to Brad?

• A)He recognizes a $5,000 loss.
• B)He recognizes a $5,000 gain and a $10,000 loss.
• C)He recognizes neither a gain nor a loss.
• D)He recognizes a $10,000 loss.

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Definitions:

Consolidation Method

A method of accounting used to combine the financial statements of subsidiary companies with those of the parent company, presenting it as one economic entity.

Equity Method

An accounting technique used by firms to assess the profits earned by their investments in other companies, where the investment income is proportional to their ownership share.

Management's Intent

The plans and objectives that company management has regarding future operations, investments, or actions, which can affect financial reporting and decision-making.

Financial Statements

Documents summarizing a corporation's financial status, encompassing the balance sheet, income statement, and statement of cash flows.