Sarah and Emily Form Red Corporation with the Following Investments

question 68

Multiple Choice

Sarah and Emily form Red Corporation with the following investments: Sarah transfers computers worth $200,000 (basis of $80,000) , while Emily transfers real estate worth $180,000 (basis of $40,000) and services (worth $20,000) rendered in organizing the corporation. Each is issued 600 shares in Red Corporation. With respect to the transfers:

• A) Sarah has no recognized gain; Emily recognizes income/gain of $160,000.
• B) Neither Sarah nor Emily recognizes gain or income.
• C) Red Corporation has a basis of $60,000 in the real estate.
• D) Emily has a basis of $60,000 in the shares of Red Corporation.
• E) None of the above.

---

Definitions:

Office Salaries Expense

The costs associated with paying salaries to administrative and office employees.

Indirect Expense

Expenses incurred that are not directly linked to a specific product or service, such as utilities or rent for the business premises.

Service Department Charges

The costs of services provided by an internal service department and transferred to a responsibility center.

Profit Center

A branch or division of a business that is directly responsible for generating its own revenue and profits.