Kit and Skye Berzina Would Like to Transfer Their Family

question 6

Multiple Choice

Kit and Skye Berzina would like to transfer their family business to their child, Winter.Winter does not have the required funds to purchase the company at this time.Which of the following might Kit and Skye consider in order to make the transfer possible without any immediate tax consequences?

• A)Sell their shares to Winter.
• B)Sell their shares to a third party who will then hire Winter.
• C)Reorganize their shares, exchanging their common shares for preferred shares of equal value, and then issue a new class of common shares to Winter for a nominal value.
• D)Sell the assets in the corporation that have appreciated in value.

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Definitions:

Fixed Manufacturing Overhead

Costs that do not vary with the level of production or sales, such as salaries of factory supervisors and rent of the manufacturing facility.

Materials Price Variance

The difference between the actual cost of raw materials and the standard cost multiplied by the quantity of materials purchased, used as a measure of cost control.

Direct Labor Variances

The differences between the budgeted and actual costs of direct labor used in production.

Direct Labor

The labor cost directly associated with the production of goods or services, including wages for workers who physically produce a product.