Aiden and Addison Form Dove Corporation with the Following Investments

question 127

Multiple Choice

Aiden and Addison form Dove Corporation with the following investments:
From Aiden
From Addison
Cash
$800,000
Building (basis of $400,000,fair market value of $300,000)
$300,000
Land (basis of $200,000;fair market value of $500,000)
500,000
​
Dove issues stock equally to Aiden and Addison.One of the tax consequences of these transfers is:

• A)Dove has a basis in the building of $400,000.
• B)Addison has a recognized loss on the building of $100,000.
• C)Addison has a basis in the Dove stock of $800,000.
• D)Addison has a recognized gain on land of $300,000 but no recognized loss on the building.
• E)None of the above.

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Definitions:

Historical Cost

The original purchase cost of an asset, as recorded in the financial statements, without adjustment for inflation or market changes.

Original Cost

The purchase price of an asset or investment, including all expenses incurred to get the asset ready for its intended use.

Balance Sheet

A financial statement that summarizes a company’s assets, liabilities, and shareholders' equity at a specific point in time.

Pay Period

The interval of time for which employee wages are calculated and paid, such as weekly, biweekly, monthly.