J, L, and R Formed a New Corporation

question 1

Multiple Choice

J, L, and R formed a new corporation.J exchanged equipment worth $35,000 (basis $8,000) for 35 percent of the stock, and services worth $25,000 for 25 percent of the stock; L exchanged land worth $25,000 (basis $5,000) for 25 percent of the stock; and R received 15 percent of the stock in exchange for securities worth $15,000 (basis $10,000) .Which of the following statements is true?

• A)The transaction would not be eligible for nonrecognition because more than 20 percent of the stock received was in exchange for services.
• B)The transaction will be eligible for nonrecognition, but J will have to recognize gain on the compensation for services.
• C)Only the basis of the property transferred is considered in determining whether nonrecognition is granted; the three shareholders owned 80 percent of the property transferred.
• D)None of the above

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Definitions:

Cash Account

An account reflecting the amount of cash available, including all receipts and payments of cash.

Bank Statement

A report sent by a bank to a customer indicating the previous balance, ATM transactions, nonsufficient funds, individual checks processed, individual deposits received, service charges, and ending bank balance.

Outstanding Checks

Checks written by a company or person that were not received or not processed by the bank before the preparation of the bank statement.

Financial Statement

A formal record of the financial activities of a business, person, or other entity, presented in a structured manner to understand financial conditions and operations.