Joe and Kay Form Gull Corporation

question 11

Multiple Choice

Joe and Kay form Gull Corporation. Joe transfers cash of $250,000 for 200 shares in Gull Corporation. Kay transfers property with a basis of $50,000 and fair market value of $240,000. She agrees to accept 200 shares in Gull Corporation for the property and for providing bookkeeping services to the corporation in its first year of operation. The value of Kay's services is $10,000. With respect to the transfer:

• A) Gull Corporation has a basis of $240,000 in the property transferred by Kay.
• B) Neither Joe nor Kay recognizes gain or income on the exchanges.
• C) Gull Corporation has a compensation deduction of $10,000.
• D) Gull capitalizes $10,000 as organizational costs.
• E) None of these.

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Definitions:

Quantity Axis

A graphical representation element used in economics to indicate quantities, such as quantities of goods produced or sold.

Marginal Revenue

The extra revenue earned from the sale of an additional unit of a product or service.

Maximize Profits

The process by which a firm adjusts its production and pricing strategies to earn the highest possible profit.

Economic Profits

Profits calculated by subtracting both the explicit and implicit costs of production from total revenues.