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:

Biological Trait

A characteristic or feature of an organism that is inherited from its parents and can be physically observed or measured.

External

Referring to or situated on the outside of something; coming or deriving from a source outside the subject affected.

Out-Group

A group of people excluded from or not belonging to one's own group, often leading to us vs. them mentality.

In-Group

A social group to which a person psychologically identifies as being a member.