1) To improve liquidity, shareholders of Sunstar Corporation make capital contribution of $200,000 in cash. To help the building of a manufacturing plant, City of Wichita donates land (worth $800,000) to Sunstar Corporation. Thus of these transactions, Sunstar has:
a. No income and a basis in the land of zero.
b. No income and a basis in the land of $800,000.
c. Income of $1 million and a basis in the land of zero.
d. Income of $800,000 and a basis in the land of $800,000.
e. None of the above.
2) ABC Corporation is liquidated and its assets are circulated to its 10 equal and unrelated individual shareholders. The assets circulated are as follows:
One of the tax consequences of liquidating distribution is:
a. The shareholders will have a basis of $800,000 in the property they receive.
b. The shareholders will have a basis of $850,000 in the property they receive.
c. ABC Corporation will recognize no loss on the securities, but must recognize a gain of $100,000 on the land.
d. No gain or loss is recognized by ABC Corporation.
e. None of the above.
Basis to ABC Corporation Value When Distributed
Marketable securities $300,000 $250,000
Land 500,000 600,000
3) Sam and his three sisters are equal partners in the Heron Partnership. In 2007, Sam sells property (basis of $300,000) to Heron for its fair market value of $280,000. In 2009, Heron sells property to a third party for $290,000. Which of the following statements accurately explains these transactions?
a. Sam has a recognized loss of $20,000, and Heron has no recognized gain or loss.
b. Sam has no recognized loss, and Heron has no recognized gain or loss.
c. Sam has no recognized loss, and Heron has a recognized gain of $10,000.
d. Sam has a recognized loss of $20,000, and Heron has a recognized gain of $10,000.
e. None of the above.