Kirby and Helen Form Red Corporation

question 7

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 any gain or income.
• 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:

Government Policy

Actions and strategies designed and implemented by government bodies to achieve specific societal goals.

Producer Surplus

The difference between the amount a producer is paid for a good versus the minimum amount they would be willing to accept for the good.

Government Policy

Official strategies or principles that a government adopts and implements to guide decisions and achieve rational outcomes.

Producer Surplus

The discrepancy in the expected versus actual earnings of sellers for goods or services.