Sarah and Tony (Mother and Son) Form Dove Corporation with the Following

question 61

Multiple Choice

Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarah of $65,000? land by Tony (basis of $25,000 and fair market value of $35,000) . Dove Corporation issues 400 shares of stock, 200 each to Sarah and Tony. Thus, each receives stock in Dove worth $50,000.

• A) Section 351 cannot apply since Sarah should have received 260 shares instead of only 200.
• B) Section 351 may apply because stock need not be issued to Sarah and Tony in proportion to the value of the property transferred.
• C) Tony's basis in the stock of Dove Corporation is $50,000.
• D) As a result of the transfer, Tony recognizes a gain of $10,000.
• E) None of the above.

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Definitions:

Fair Value Hedge

A hedge that is used to mitigate the risk of changes in the fair value of an asset or liability or an unrecognized firm commitment.

Cash Flow Hedge

A financial strategy used to manage the risk of fluctuations in cash flow due to changes in exchange rates, interest rates, or commodity prices.

Other Comprehensive Income

Income that is not part of net income, including items that have not been realized or that are not typical earnings, such as foreign currency translation adjustments.

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) that is globally accepted.