Matt and Sheila Form Krupp Corporation

question 15

Multiple Choice

Matt and Sheila form Krupp Corporation. Matt contributes property with an FMV of $55,000 and a basis of $35,000. Sheila contributes property with an FMV of $75,000 and a basis of $40,000. Matt sells his stock to Paul shortly after the exchange. The transaction will

• A)not qualify under Sec. 351.
• B)qualify under Sec. 351 if Matt can show that the sale to Paul was not part of a prearranged plan.
• C)qualify with respect to Sheila under Sec. 351 whether Matt qualifies or not.
• D)qualify under Sec. 351 only if an advance ruling has been obtained.

---

Definitions:

Equity Multiplier

A financial leverage ratio that measures the portion of a company's assets that are financed by shareholders' equity.

Net Profit Margin

A financial metric that measures the percentage of profit generated from revenue after all expenses have been subtracted.

Gross Margin

The difference between revenue and cost of goods sold, which shows the profitability of a company's core activities.

Return On Total Assets

A financial ratio that measures a company's profitability relative to its total assets.