REVIEW EXAM 1- ACC 4302- Corporation Acct
1/. A corporation sells property (basis of $50,000) to its sole shareholder for $40,000, the fair
market value
... [Show More] of the property. With respect to the sale:
- The shareholder has a basis of $40,000 in the property
(The shareholder has a basis equal to its cost of $40,000. The loss of $10,000 to the corporation is not
deductible because of Section 267. But since the overall economic effect of the transaction is a decrease
in the corporation's assets by $10,000, the loss will reduce E & P for the year of sale)
2/. Abalone Corporation, an Accrual Basis taxpayer, was formed and began operations on September 1,
2018. The following expenses were incurred during the first tax year (September 1, 2018 to December
31, 2018) of operations: Expenses of temporary directors and of organizational meetings - $ 10,000; Fee
paid to the state of incorporation - $1,600; Accounting services incident to organization - $6,800; Legal
services for drafting the corporate charter and bylaws - $2,000; Expenses incident to the printing and
sale of stock certificates - $8,000 (Total - $28,400). Assume Abalone Corporation makes an appropriate
and timely election under Section 248(c) and the related Regulations. What is the maximum
organizational expense Abalone may write off for tax year 2018?
- Qualifying organizational expenditures include these items: Expenses of temporary directors and of
organizational meetings $10,000 Fee paid to the state of incorporation 1,600 Accounting services
incident to organization 6,800Legal services for drafting the corporate charter and bylaws 2,000 Total
$20,400. Since an appropriate and timely election under Section 248(c) was made, the amount that
Abalone Corporation may write off for the tax year 2018 is determined as follows:
$5,000 + ($15,400 ($20,400 - $5,000) ÷ 180 months) X 4 (months in tax year) = $5,342
3/. Agatha transfers property worth $275,000, basis of $100,000, to Shepard Corporation for 80% of the
stock in Shepard, worth $150,000, and a long-term note, executed by Shepard Corporation and made
payable to Agatha, worth $125,000 [Show Less]