Kevin and Nicole Form Indigo Corporation with the Following Transfers

question 84

Multiple Choice

Kevin and Nicole form Indigo Corporation with the following transfers: inventory from Kevin (basis of $360,000 and fair market value of $400,000) and improved real estate from Nicole (basis of $320,000 and fair market value of $375,000) .Nicole,an accountant,agrees to contribute her services (worth $25,000) in organizing Indigo.The corporation's stock is distributed equally to Kevin and Nicole.As a result of these transfers:

• A)Indigo can deduct $25,000 as a business expense.
• B)Nicole has a recognized gain of $55,000 on the transfer of the real estate.
• C)Indigo has a basis of $360,000 in the inventory.
• D)Indigo has a basis of $375,000 in the real estate.
• E)None of the above.

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Definitions:

Variable Cost

Expenses that change in proportion to the level of production or sales volume, such as raw materials and direct labor.

Transfer Price

The rate at which products and services are exchanged among departments within the same organization.

Opportunity Cost

The value of the best alternative that is foregone when a particular decision is made.

Transfer Price

The price at which divisions of a company transact with each other, such as the trade of supplies or labor between departments.