Kirby and Helen Form Red Corporation

question 10

Multiple Choice

Kirby and Helen form Red Corporation. Kirby transfers property, basis of $20,000 and value of $300,000, for 100 shares in Red Corporation. Helen transfers property, basis of $40,000 and value of $280,000, and provides legal services in organizing the corporation. The value of her services is $20,000. In return Helen receives 100 shares in Red Corporation. Regarding these transfers:

• A) Kirby will recognize gain.
• B) Helen will not recognize any gain or income.
• C) Red Corporation will have a basis of $280,000 in the property it acquired from Helen.
• D) Red will have a business deduction of $20,000.
• E) None of these.

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Definitions:

Fiscal Year

A one-year period that companies and governments use for financial reporting and budgeting that does not necessarily align with the calendar year.

Transactions

The exchange or transfer of goods, services, or funds between two or more parties.

Fiscal Year

A 12-month period used for accounting purposes and preparing financial statements, which may begin and end at any point during the calendar year.