Kirby and Helen Form Red Corporation

question 58

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.With respect to the transfers:

• A)Kirby will recognize gain.
• B)Helen will not recognize gain.
• 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 the above.

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Definitions:

Formal Income Statement

A financial document that provides a detailed report of a company's revenues, expenses, and net income over a specific period.

Worksheet

A paper or digital form used to organize data and calculate figures, often preliminary to the preparation of financial statements.

Operating Expense

A type of expenditure that a business incurs as a result of carrying out its day-to-day operations, excluding the cost of goods sold.