Sarah and Tony (Mother and Son) Form Dove Corporation with the Following

question 61

Multiple Choice

Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarah of $65,000? land by Tony (basis of $25,000 and fair market value of $35,000) . Dove Corporation issues 400 shares of stock, 200 each to Sarah and Tony. Thus, each receives stock in Dove worth $50,000.

• A) Section 351 cannot apply since Sarah should have received 260 shares instead of only 200.
• B) Section 351 may apply because stock need not be issued to Sarah and Tony in proportion to the value of the property transferred.
• C) Tony's basis in the stock of Dove Corporation is $50,000.
• D) As a result of the transfer, Tony recognizes a gain of $10,000.
• E) None of the above.

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Definitions:

Images

Mental representations or visual pictures in the mind.

Scientific Method

A systematic process for research and investigation that involves the observation, measurement, and experiment, and the formulation, testing, and modification of hypotheses.

Critical Thinking

The goal of critically examining and assessing a matter to develop an opinion.

Hypothesis

A proposed explanation made on the basis of limited evidence as a starting point for further investigation.