Joe and Kay Form Gull Corporation

question 94

Multiple Choice

Joe and Kay form Gull Corporation. Joe transfers cash of $250,000 for 200 shares in Gull Corporation. Kay transfers property with a basis of $50,000 and fair market value of $240,000. She agrees to accept 200 shares in Gull Corporation for the property and for providing bookkeeping services to the corporation in its first year of operation. The value of Kay's services is $10,000. With respect to the transfer:

• A) Gull Corporation has a basis of $240,000 in the property transferred by Kay.
• B) Neither Joe nor Kay recognizes gain or income on the exchanges.
• C) Gull Corporation has a compensation deduction of $10,000.
• D) Gull capitalizes $10,000 as organizational costs.
• E) None of the above.

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Definitions:

Independent Auditor's Report

A document provided by an independent auditor as a result of an audit or evaluation of a company's financial statements, giving an opinion on the financial statements' accuracy and compliance with accounting standards.

Financial Statements

Formal records of the financial activities and position of a business, individual, or other entity, typically including the balance sheet, income statement, and cash flow statement.

Auditor's Opinion

An assessment provided by an external auditor regarding the accuracy and completeness of a company's financial statements.

Annual Reports

Corporate documents that give a comprehensive summary of a company’s activities and financial performance over the preceding year.