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klasskru [66]
3 years ago
7

Hazel transferred the following assets to Starling Corporation: Adjusted Basis Fair Market Value Cash $120,000 $120,000 Machiner

y 48,000 36,000 Land 108,000 144,000 In exchange, Hazel received 50% of Starling Corporation's only class of stock outstanding. The stock has no established value. However, all parties sincerely believe that the value of the stock Hazel received is the equivalent of the value of the assets she transferred. The only other shareholder, Rick, formed Starling Corporation five years ago and did not transfer any property to Starling Corporation for stock at this time. Select one: a. Hazel has no gain or loss on the transfer. b. Starling Corporation has a basis of $48,000 in the machinery and $108,000 in the land. c. Starling Corporation has a basis of $36,000 in the machinery and $144,000 in the land. d. Hazel has a basis of $276,000 in the stock of Starling Corporation. e. None of the above.
Business
1 answer:
Alla [95]3 years ago
7 0

Answer:

c. Starling Corporation has a basis of $36,000 in the machinery and $144,000 in the land.

Explanation:

Note: The data in the question are merged together. For clarity purpose, they are therefore sorted before answering the question as follows:

                          Adjusted Basis            Fair Market Value

Cash                     $120,000                        $120,000

Machinery                48,000                            36,000

Land                        108,000                          144,000

The explanation to the answer is now provided as follows:

Since the control requirement of Sec. 351 that permits a tax-free incorporation transfer, this is therefore a taxable exchange.

This will therefore make Starling Corporation to have a basis of $180,000 in the machinery and land. That is,

Total Starling Corporation basis in  machinery and land = Fair market value of machinery + Fair market value of land = $36,000 + $144,000 = $180,000

This implies that on machinery, a loss of $12,000 has been recognized by Hazel, while a gain of $36,000 has also been recognized by Hazel on the land. That is,

Loss recognized by Hazel on Machinery = Machinery Adjuted basis - Machinery fair market value = $48,000 - $36,000 = $12,000

Gain recognized by Hazel on land = Land fair market value - Land adjuted basis = $144,000 - $108,000 = $36,000

In addition, Hazel has a basis of $300,000 in the Starling Corporation stock she receives. That is,

Hazel Basis = Fair market vale of cash + Fair market value of machinery + Fair market value of land = $120,000 + $36,000 + $144,000 = $300,000

Based on the analysis above, therefore, the correct option is c. Starling Corporation has a basis of $36,000 in the machinery and $144,000 in the land.

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7 0
2 years ago
Diaz Company reports the following variable costing income statement for its single product. This company’s sales totaled 55,000
kirill [66]

Answer:

Sales                               3,575,000

Variable Manufacturing   1,567,500

Fixed Manufacturing      <u>    247,500</u>

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gross profit                       1,760,000

Variable S&A expense      302,500

Fixed S&A expense     <u>        191,250  </u>

Net Income                      1,266,250‬

Explanation:

Absorption cost will consider unit cost only the manufacturing department cost the rest are period cost.

We solve for the fixed overhead per unit using produced units:

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7 0
3 years ago
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Ede4ka [16]

Answer:

The accounting entry for each transaction is given below.

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Debit Cash Asset       $10,000

Credit Capital              $10,000

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Debit equipment Asset      $5,000

Credit Payable Liability       $5,000

c. Paid $400 for office supplies.

Debit payable         $400

Credit Cash Asset   $400

d. Earned and received $2,500 cash for service revenue.

Debit Cash Asset    $2,500

Credit Income          $2,500

e. Paid $400 for wages to employees.

Debit Wages expense   $400

Credit Cash Asset          $400

f. Gibson withdrew $1,000 cash

Debit Capital          $1,000

Credit Cash Asset  $1,000

.g. Earned $1,000 for services provided. Customer has not yet paid.

Debit Receivable           $1,000

Credit Service Income   $1,000

h. Paid $1,000 for rent.

Debit Rent expense   $1,000

Credit Cash Asset      $1,000

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8 0
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Answer:

A. Lowest Total Cost:

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C. C

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