Kathleen Transferred the Following Assets to Mockingbird Corporation

question 37

Multiple Choice

Kathleen transferred the following assets to Mockingbird Corporation. In exchange,Kathleen received 40% of Mockingbird Corporation's only class of stock outstanding.The stock has no established value.However,all parties sincerely believe that the value of the stock Kathleen received is the equivalent of the value of the assets she transferred.The only other shareholder,Rick,formed Mockingbird Corporation five years ago.

• A)Kathleen has no gain or loss on the transfer.
• B)Mockingbird Corporation has a basis of $48,000 in the equipment and $108,000 in the land.
• C)Kathleen has a basis of $256,000 in the stock of Mockingbird Corporation.
• D)Mockingbird Corporation has a basis of $36,000 in the equipment and $144,000 in the land.
• E)None of the above.

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Definitions:

Adjusting Entry

A journal entry made in accounting records at the end of an accounting period to allocate income and expenditure to the appropriate periods.

Adjusting Entries

At the conclusion of an accounting cycle, entries are documented in the accounting ledger to distribute revenues and costs to the actual period they happened.

Types

Varieties or classifications into which objects, people, or concepts can be grouped based on shared characteristics.

Profit Margin Ratio

A financial metric used to evaluate a business's profitability by dividing net income by net sales.