Sarah and Tony (Mother and Son) Form Dove Corporation with the Following

question 61

Multiple Choice

Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarah of $65,000? land by Tony (basis of $25,000 and fair market value of $35,000) . Dove Corporation issues 400 shares of stock, 200 each to Sarah and Tony. Thus, each receives stock in Dove worth $50,000.

• A) Section 351 cannot apply since Sarah should have received 260 shares instead of only 200.
• B) Section 351 may apply because stock need not be issued to Sarah and Tony in proportion to the value of the property transferred.
• C) Tony's basis in the stock of Dove Corporation is $50,000.
• D) As a result of the transfer, Tony recognizes a gain of $10,000.
• E) None of the above.

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Definitions:

Comparative Advantage

The ability of an entity to produce a good or service at a lower opportunity cost than others, enabling more efficient trade.

Austria

A landlocked country in Central Europe, known for its rich cultural history, and contributions to art, music, and science.

Italy

A country located in southern Europe, known for its rich history, cultural heritage, and significant contributions to art, food, and fashion.

Specialization

The process by which individuals, organizations, or nations concentrate on producing a limited range of goods or services, to increase efficiency and productivity.