Question 35

Dicky, Bev and Mollie form Murphy Corporation. Dicky transfers land worth $80,000 (adjusted basis is $25,000) for 80 shares, Mollie transfers $40,000 cash for 40 shares and Bev transfers equipment worth $40,000 (adjusted basis is $16,000) and $40,000 of services for 80 shares. Bevs tax consequences are:

A. $64,000 recognized gain; basis in 80 shares of $80,000

B. $40,000 recognized gain; basis in 80 shares of $56,000

C. $24,000 recognized gain; basis in 80 shares of $40,000

D. $0 recognized gain; basis in 80 shares of $16,000

Question 36

Jane Smith owns 85 percent of Smith Sisters Company, Inc. On March 8, 2014, Jane contributed land to the firm. Her adjusted basis in the land was $60,000 and its fair market value on March 8 was $140,000. Jane Smith did not receive anything in return for the contribution. As a result of this transaction, Smith Sisters Company, Inc. will:

A. recognize a gain of $80,000 and will take a basis in the land of $80,000.

B. recognize a gain of $140,000 and will take a basis in the land of $140,000.

C. not recognize a gain and will take a basis in the land of $60,000.

D. not recognize a gain and will take a basis in the land of $140,000.

Question 37

Paula receives a liquidating distribution from Pell Corporation as part of a redemption of all of its stock. Paulas basis for her Pell stock is $10,000. In exchange for her stock, Paula receives property with an $8,000 basis and a $15,000 fair market value that is subject to a $2,000 mortgage, and also receives cash of $5,000. How much is Paulas recognized gain?

A. $12,000.

B. $10,000.

C. $8,000.

D. $0.