Loonis Inc

question 9

Multiple Choice

Loonis Inc. and Rhea Company formed LooNR Inc. by transferring business assets in exchange for 1,000 shares of LooNR common stock. Loonis transferred assets with a $820,000 FMV and a $444,000 adjusted tax basis and received 820 shares. Rhea transferred assets with a $180,000 FMV and a $75,000 adjusted tax basis and received 180 shares. Compute Loonis and Rhea's realized and recognized gain on the exchange.

• A) Loonis realized and recognized $376,000 gain. Rhea realized and recognized $105,000 gain.
• B) Loonis realized $376,000 gain and recognized no gain. Rhea realized and recognized $105,000 gain.
• C) Loonis realized $376,000 gain and recognized no gain. Rhea realized $105,000 gain and recognized no gain.
• D) There is not enough information to compute realized and recognized gain.

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Definitions:

Accounting Period

A specific time frame covered by financial statements, typically a fiscal quarter or year, used for calculating earnings and managing taxation.

External Auditor

An independent third party hired to examine the financial statements of an entity to ensure accuracy and adherence to accounting standards.

Internal Control System

A set of procedures and mechanisms implemented by a business to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Cost-Benefit

An analysis or assessment comparing the costs and benefits of a decision or project to determine its feasibility or worthiness.