In Order to Induce Parakeet Corporation to Build a New

question 93

Multiple Choice

In order to induce Parakeet Corporation to build a new manufacturing facility in Oxford,Mississippi,the city donates land (fair market value of $250,000) and cash of $50,000 to the corporation.Within several months of the donation,Parakeet Corporation spends $350,000 (which includes the $50,000 received from Oxford) on the construction of a new plant located on the donated land.

• A)Parakeet recognizes income of $50,000 as to the donation.
• B)Parakeet has a zero basis in the land and a basis of $350,000 in the plant.
• C)Parakeet recognizes income of $300,000 as to the donation.
• D)Parakeet has a zero basis in the land and a basis of $300,000 in the plant.
• E)None of the above.

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Definitions:

Diminishing Returns

A principle stating that as investment in a single area of production increases, the rate of return from that investment, after a certain point, begins to decrease.

Worker

A person engaged in work, especially in manual or industrial labor, often for wages.

Profit Maximizing

Profit maximizing is the process by which a firm determines the price and output level that returns the greatest profit.

Workers Paid

Workers Paid refers to the total compensation, including wages, salaries, and benefits, given to employees for their labor.