At the Time of His Death, Harvey Was a Shareholder

question 88

Multiple Choice

At the time of his death, Harvey was a shareholder in Grebe Corporation. In valuing the Grebe stock included in Harvey's gross estate, the IRS contends that the corporation possessed considerable goodwill. In disputing this contention, which of the following point(s) is/are relevant?

• A) To provide financing, Grebe has been obtaining its working capital from the shareholders at a below market rate of interest.
• B) The rate of return used by the IRS for the type of business involved is too high.
• C) Average net profit figures do not include large losses from unrelated investments.
• D) Harvey was not an employee of Grebe but was merely a passive investor.
• E) None of the above.

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Definitions:

Activity-Based Costing

An accounting method that assigns costs to products and services based on the activities they require, aiming for more precise cost allocation.

General Factory

A term generally referring to the main production site where various goods are manufactured.

Activity-Based Costing

A method of accounting that recognizes and allocates expenses to overhead operations, before distributing those expenses to the products.

General Factory

Expenses related to the general operation of a manufacturing plant, not directly tied to specific units of production.