Four Shareholders Form a New Corporation in Exchange for Stock

question 2

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 Benjamin's realized and recognized gain, respectively?

• A)$5,000, $20,000
• B)$10,000, $15,000
• C)$15,000, $10,000
• D)$20,000, $5,000

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Definitions:

Recessive

Describing traits or genes that are expressed in offspring only when inherited from both parents, as opposed to dominant traits that are expressed when inherited from just one parent.

Genetic Disorders

Diseases or conditions caused by abnormalities in an individual's DNA, often inherited from one or both parents.

Autosomes

Any chromosome that is not a sex chromosome; autosomes are present in pairs in both males and females and carry the bulk of genetic information.

X-linked

A mode of genetic inheritance by which a trait is passed from parent to child through the X chromosome.