In Order to Induce Yellow Corporation to Build a New

question 62

Multiple Choice

In order to induce Yellow Corporation to build a new manufacturing facility in Knoxville, Tennessee, the city donates land (fair market value of $400,000) and cash of $100,000 to the corporation. Several months after the donation, Yellow Corporation spends $450,000 (which includes the $100,000 received from Knoxville) on the construction of a new plant located on the donated land.

• A) Yellow recognizes income of $100,000 as to the donation.
• B) Yellow has a zero basis in the land and a basis of $450,000 in the plant.
• C) Yellow recognizes income of $500,000 as to the donation.
• D) Yellow has a zero basis in the land and a basis of $350,000 in the plant.
• E) None of the above.

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Definitions:

Coupon Rate

The annual interest rate paid by a bond as a percentage of the face value, indicating the income investors can expect to receive.

Interest Rates

The percentage of a sum of money charged for its use, often expressed as an annual percentage.

Premium

The amount paid for an insurance policy or an extra charge for an enhanced or optional service over and above the basic.

Market Value

The contemporary selling or buying price of a service or asset in the market.