9. Blue Corporation is a C corporation with earnings of $700,000. It paid $200,000 in dividends to its sole shareholder, Vilolet. Violet also owns 100% of Green Corporation, an Scorporation. Green had net taxable income of $100,000 and made a $40,000 distribution to Violet. What income will Violet report from Blue and Green's activities? A) $240,000 B) $300,000 C) $740,000 D) $800,000 10. Which of the following statements is incorrect? A) S corporations must allocate income and expenses to their shareholders based on their proportionate ownership interest B) S corporation income is taxed to shareholders when earned. C) S corporation losses can offset shareholder income from other sources. D) The number of corporation shareholders is unlimited. 11. Identify which of the following statements is true. A) The exchange of stock for services rendered is not a taxable transaction. B) Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences. C) The repeal of Sec. 351 would result in more existing businesses being incorporated. D) All of the above are false. 12. Diego and Justina form a new corporation. Diego contributes cash for 85% of the stock and Justina contributes services for 15% of the stock. The tax effect is A) Diego and Justina must recognize their realized gains, if any. B) Justina must report the FMV of the stock received as capital gain. C) Justina must report the FMV of the stock received as ordinary income. D) Diego and Justina are not required to recognize their realized gains. 13. Gary owns all 250 shares of NEIU Corporation stock valued at $300,000. Cristal, a new shareholder, receives 250 newly issued shares from NEIU Corporation in exchange for inventory with an adjusted basis of $150,000 and an FMV of $200,000. Which of the following statements is correct? A) Maria may defer the recognition of any tax until the stock is sold. A) No gain will be recognized by Maria. C) The transaction results in $50,000 of capital gain for Maria. D) The transaction results in $50,000 of ordinary income for Maria