When Pheasant Corporation Was Formed Under § 351, Kristen Transferred

question 63

Multiple Choice

When Pheasant Corporation was formed under § 351, Kristen transferred property (basis of $26,000 and fair market value of $22,500) for § 1244 stock. Kristen's basis in the Pheasant stock is $26,000. Three years later, Pheasant Corporation goes bankrupt and its stock becomes worthless. Kristen, who is single, owned the stock as an investment. Kristen's loss is:

• A) $26,000 capital.
• B) $22,500 ordinary and $3,500 capital.
• C) $3,500 ordinary and $22,500 capital.
• D) $26,000 ordinary.
• E) None of the above.

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Definitions:

Unregulated Market

A market where government agencies do not control or limit the behaviors of buyers and sellers, allowing the forces of supply and demand to freely set prices.

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, leading to a stable market condition.

Equilibrium Quantity

The amount of products or services offered and sought after at the balance price.

Supply Shifts

Changes in the quantity of a product or service that suppliers are willing and able to offer for sale at all possible prices.