1. Charles, Cleo, and Carla incorporate CCC Enterprises and contribute the assets listed in Table A in exchange for 300 shares each in the corporation (all of the corporation's 900 common shares).

TABLE A

	Basis	Fair Market Value
Charles:
Equipment	20,000	50,000
Cleo:
Inventory	35,000	50,000
Carla:
Services	0	20,000	**
Cash	30,000	30,000

**Carla's services were for legal incorporation and compliance duties.

Select ALL of the TRUE statements listed below.

Question 1 options:

	The exchange is tax free to all parties involved.
	The exchange is tax free to Charles and Cleo but is partially taxable to Carla.
	Carla has a $30,000 basis in her stock.
	Cleo has a $35,000 basis in her stock.
	Carla recognizes $20,000 of income on the exchange and has a $50,000 basis in her stock.
	The corporation has a $20,000 basis in an asset called "Organizational Costs."
	The corporation's basis in the equipment is $20,000.

Question 2

Refer to the facts of Question #1 as originally stated. Suppose Cleo contributed $60,000 of inventory with a basis of $35,000 and the corporation took $10,000 of the cash contributed by Carla and distributed that amount to Cleo to equalize her contribution.

Select ALL TRUE statements from the list below.

Question 2 options:

	Cleo would have a $25,000 basis in her stock
	Cleo would recognize a $10,000 gain.
	Cleo would have a $45,000 basis in her stock.
	Cleo would have a $35,000 basis in her stock.
	The corporation would have a $45,000 basis in the inventory.

Question 3

Charles contributes cash of $30,000 and equipment with a basis of $10,000 and a value of $70,000 for all of the stock of Charter Furniture, Inc. The equipment is encumbered by a $50,000 liability. Prior to the contribution, Charles used the equipment in his sole proprietorship. The equipment purchase was financed originally with mostly debt and Charles had paid down the balance prior to contribution.

Select ALL of the TRUE statements listed below.

Question 3 options:

	Charles has no gain on the transaction.
	Charles has a $50,000 gain on the transaction.
	Charles has a $10,000 gain on the transaction.
	Charles has a $0 basis in his stock.
	Charles has a $40,000 basis in his stock.
	The corporation has a $20,000 basis in the equipment.