Donghai Transferred the Following Assets to Starling Corporation

question 50

Multiple Choice

Donghai transferred the following assets to Starling Corporation. In exchange, Donghai received 50% of Starling Corporation's only class of stock outstanding.The stock has no established value.However, all parties believe that the value of the stock Donghai received is the equivalent of the value of the assets she transferred.The only other shareholder, Rick, formed Starling Corporation five years ago.

• A)Donghai has no gain or loss on the transfer.
• B)Starling Corporation has a basis of $48,000 in the machinery and $108,000 in the land.
• C)Starling Corporation has a basis of $36,000 in the machinery and $144,000 in the land.
• D)Donghai has a basis of $276,000 in the stock of Starling Corporation.
• E)None of the above.

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Definitions:

Statement Of Cash Flows

A financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given period.

Non-Current Assets

Assets that are expected not to be converted into cash within a year and are long-term resources of a company, such as property, plant, and equipment.

Shares

Units of ownership interest in a corporation or financial asset that provide for an equal distribution in any profits, if any are declared, in the form of dividends.

Interest Paid

The total amount of interest payments made on any borrowed funds or debt over a specific period.