1. Rocco and Christina form a new corporation. Rocco contributes cash for 90% of the stock and Christina contributes services for 10% of the stock. The tax effect is

A) Rocco and Christina must recognize their realized gains, if any.

B) Christina must report the FMV of the stock received as ordinary income.

C) Christina must report the FMV of the stock received as capital gain.

D) Rocco and Christina are not required to recognize their realized gains.

2.

. Juan owns all 100 shares of Corona Corporation stock valued at $75,000. Maria, a new shareholder, receives 100 newly issued shares from Corona Corporation in exchange for inventory with an adjusted basis of $60,000 and an FMV of $75,000. Which of the following statements is correct?

A) Maria may defer the recognition of any tax until the stock is sold.

B) No gain will be recognized by Maria.

C) The transaction results in $15,000 of ordinary income for Maria.

D) The transaction results in $15,000 of capital gain for Maria.