Adam Transfers Cash of $300,000 and Land Worth $200,000 to Camel

question 38

Multiple Choice

Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100% of the stock in Camel. In the first year of operation, Camel has net taxable income of $70,000. If Camel distributes $50,000 to Adam:

• A) Adam has taxable income of $50,000.
• B) Camel Corporation has a tax deduction of $50,000.
• C) Adam has no taxable income from the distribution.
• D) Camel Corporation reduces its basis in the land to $150,000.
• E) None of these.

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Definitions:

Projected Cash Flows

Estimates of the amount of cash an investment, project, or business venture is expected to bring in over a given period.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health.

Accounts Receivable

Debts owed by customers to a business for products or services provided but not yet compensated for.

Accounts Payable

The amount of money that a company owes to its creditors for goods or services that it has received but not yet paid for.