In Order to Induce Yellow Corporation to Build a New

question 62

Multiple Choice

In order to induce Yellow Corporation to build a new manufacturing facility in Knoxville, Tennessee, the city donates land (fair market value of $400,000) and cash of $100,000 to the corporation. Several months after the donation, Yellow Corporation spends $450,000 (which includes the $100,000 received from Knoxville) on the construction of a new plant located on the donated land.

• A) Yellow recognizes income of $100,000 as to the donation.
• B) Yellow has a zero basis in the land and a basis of $450,000 in the plant.
• C) Yellow recognizes income of $500,000 as to the donation.
• D) Yellow has a zero basis in the land and a basis of $350,000 in the plant.
• E) None of the above.

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Definitions:

Interest Rate

The slice of a loan imposed as interest upon the borrower, usually articulated as an annual percentage of the loan still to be repaid.

Federal Income Tax

A tax imposed by the United States federal government on the annual earnings of individuals, corporations, trusts, and other legal entities.

Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's initial cost.

Risk

The potential for losing something of value or the uncertainty regarding the outcome of an investment or decision.