1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Anastasy [175]
3 years ago
11

Rhonda owns 50% of the stock of Peach Corporation. She and the other 50% shareholder, Rachel, have decided that additional contr

ibutions of capital are needed if Peach is to remain successful in its competitive industry. The two shareholders have agreed that Rhonda will contribute assets having a value of exist200,000 (adjusted basis of exist15,000) in exchange for additional shares of stock. After the transaction, Rhonda will hold 75% of Peach Corporation and Rachel's interest will fall to 25%
a. What gain is realized on the transaction? How much of the gain will be recognized?
b. Rhonda is not satisfied with the transaction as proposed How will the consequences change if Rachel agrees to transfer exist1,000 of cash in exchange for additional stock? In this case, Rhonda will own slightly less than 75% of Peach and Rachel's interest will be slightly more than 25%.
c. If Rhonda still is not satisfied with the result, what should be done to avoid any gain recognition?
Business
1 answer:
marin [14]3 years ago
5 0

Answer:

Explanation:

The transaction is fully taxable because Rhonda, the sole transferor of property, does not have control immediately after the transaction. Therefore, all of the realized gain is recognized.

Amount realized—stock                                                 $200,000

Less: Adjusted basis of property transferred                  (15,000)

Realized gain                                                                   $185,000

Recognized gain                                                             $185,000

b. With the change, Rhonda is trying to avoid recognizing the $185,000 gain. The plan involves Rachel becoming a transfer of property along with Rhonda so that together they would meet the 80% control test. If Rhonda is part of a group that meets the control test, she would avoid recognizing the gain. However, this plan will not be successful. Rachel’s interest cannot be counted since the value of the stock she would receive is relatively small compared to the value of the stock she already owns. In addition, Rachel’s contribution would be made primarily to qualify Rhonda for § 351 treatment.

c. The following alternatives would enable Rhonda to avoid gain recognition:

•    Rhonda can transfer property that has not appreciated in value. For example, if she were to contribute $200,000 of cash to Peach, Rhonda would not recognize gain on the transaction.

•    Rachel could contribute property of an amount that is not small relative to the value of the stock already owned. By doing so, she would be considered a transfer  of property along with Rhonda, and together, they would have control. As a result, Rhonda would avoid gain recognition. For example, if the value of Rachel’s stock is worth approximately $200,000 prior to the contribution, a transfer of at least $20,000 would likely be sufficient to avoid the relative-small-in-value test.

You might be interested in
Clint's salary increased from ​$22 comma 000 to ​$35 comma 200 over a​ three-year period.​ Helen's salary increased from ​$28 co
Romashka [77]

Answer:

a

Explanation:

Helen salary increased more, because her salary increased by 16,800 dollars this is more than 13,200 dollars ,the amount Clint's salary increased.

3 0
2 years ago
China allows U.S. companies to ally with Chinese firms by purchasing minority ownership positions in the Chinese firms. These re
Snowcat [4.5K]

Answer:

C) equity strategic alliances.

Explanation:

100% correct

6 0
2 years ago
On Mar 3, Lyons Company paid dividends of $1,000. Use your knowledge of what a correct journal entry should look like to identif
Anastasy [175]
E:cash would be debited and listed first
3 0
3 years ago
Riya has recently started a restaurant in a commercial area that already has many other establishedrestaurants and popular fast-
STatiana [176]

Answer:

Option 4 Building is the most valuable asset owned by Riya

Explanation:

The reason is that the asset lowers the breakeven point and also helps to increase the profit by offering at lower prices than the competitor to increase the product demand and earn more by increased demand (Demand and price relationship application). So the most valuable asset from the business perspective is building owned by Riya.

3 0
2 years ago
A seller hired broker N under the terms of an open listing. While that listing was still in effect, the seller without informing
ludmilkaskok [199]

Answer:

commission to both brokers N and K.

Explanation:

Broker N is entitled to a sales commission because he/she sold the property. But broker K is also entitled to a commission because an exclusive right-to-sell agreement allows him/her to collect a commission no matter who sells the property. The only exception to the agreement would be if the seller himself/herself sold the property, but that is not the case here.

4 0
3 years ago
Other questions:
  • Firm A pays $0.80 a year as dividends on its common stock. Currently this stock sells for $28.12 a share. Last year, at this tim
    11·1 answer
  • On July 10, Pet Supply Store orders fifty small dog collars from Quality Collars, Inc. to be delivered by July 15. On July 13, Q
    9·2 answers
  • With reference to a basic OB model, ________ are determined in advance of the employment relationship and refer to variables suc
    13·1 answer
  • Companies may want to consider budgeting for contributions to employee loss expenses (such as funerals) as well as for counselin
    12·1 answer
  • When the amount for land is 36,000 and the amount paid for expenses is 10,000, the balance of total asset is
    7·1 answer
  • Nikki, the design and development manager at Holden Outerwear, says she likes "taking something everyone does every day and doin
    9·1 answer
  • Essay on trade unions and labor restrictions​
    12·1 answer
  • What are the three reasons that companies import?
    5·1 answer
  • I need help asap ! thank you :)
    9·1 answer
  • Bryan's department at Farrell Manufacturing is responsible for planning, implementing, and controlling the flow and storage of p
    11·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!