Gabriella and Juanita Form Luster Corporation

question 73

Multiple Choice

Gabriella and Juanita form Luster Corporation. Gabriella transfers cash of $50,000 for 50 shares of stock, while Juanita transfers information concerning a proprietary process (basis of zero and fair market value of $50,000) for 50 shares of stock.

• A) The transfers to Luster are fully taxable to both Gabriella and Juanita.
• B) Juanita must recognize gain of $50,000.
• C) Because Juanita is required to recognize gain on the transfer, Gabriella also must recognize gain.
• D) Neither Gabriella nor Juanita will recognize gain on the transfer.
• E) None of the above.

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Definitions:

Investment Strategy

A set plan of action designed to achieve long-term financial goals, involving the selection of various financial assets for investment.

Risk Aversion

The tendency of investors to prefer safer investments over riskier ones to avoid loss.

Investors Prefer

Refers to investors' tendencies to favour certain assets, securities, or investment strategies based on risk, return, and personal preferences.

Expected Return

The predicted amount of profit or loss an investment generates based on historical performance or analyst forecasts.