George Transfers Cash of $150,000 to Finch Corporation, a Newly

question 89

Multiple Choice

George transfers cash of $150,000 to Finch Corporation, a newly formed corporation, for 100% of the stock in Finch worth $80,000 and debt in the amount of $70,000, payable in equal annual installments of $7,000 plus interest at the rate of 9% per annum. In the first year of operation, Finch has net taxable income of $40,000. If Finch pays George interest of $6,300 and $7,000 principal payment on the note:

• A) George has dividend income of $13,300.
• B) Finch Corporation does not have a tax deduction with respect to the payment.
• C) George has dividend income of $7,000.
• D) Finch Corporation has an interest expense deduction of $6,300.
• E) None of the above.

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Definitions:

Source Document

A primary document that holds the necessary information to verify a transaction recorded in a financial system.

Manual

A handbook or guide that provides instructions or guidelines on how to perform tasks or operate machinery or equipment.

Computerized Accounting System

A software system that is used for processing accounting transactions and managing accounts with minimal manual input.

Title

The legal right to own or possess something, such as property or a title to a vehicle, representing ownership and legal possession.