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

question 59

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 these.

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Definitions:

ATC

Average Total Cost, which is the sum of all production costs divided by the quantity of output produced.

Economic Profits

Profits exceeding the opportunity costs of a company; considered an indicator of efficiency and entrepreneurship.

Average Total Cost

The total cost of production divided by the total quantity of goods produced, representing the cost per unit.

Average Variable Cost

The cost of labor and materials divided by the quantity of output produced, reflecting costs that change with the level of output.