Loonis Inc

question 11

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.Which of the following statements is true?

• A)The FMV of Rhea's 180 shares is $180,000.
• B)Rhea's exchange of assets for stock is taxable because Rhea is not in control of LooNR immediately after the exchange.
• C)LooNR recognizes a $105,000 gain on the exchange of its stock for Rhea's assets.
• D)None of the above is true.

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Definitions:

Marginal Tax Rates

The amount of tax paid on an additional dollar of income, which can vary by income level and type of taxpayer.

Federal Personal Income Tax

A tax levied by the federal government on the annual income of individuals, with rates varying based on income levels.

Average Tax Rates

The ratio of total taxes paid to total income, expressing the fraction of income that is paid in taxes.

Taxable Income

The portion of an individual's or corporation's income that is subject to taxation according to federal or state law.