WGU C239 FINAL EXAM 2026-2027 QUESTIONS AND
ANSWERS RATED A+
✔✔Business A is a calendar-year taxpayer and purchased office equipment for $10
million on March 1, 2018. The items were placed in service on May 1, 2018. The asset
has a 10-year recovery period for GAAP accounting purposes.
What is the amount of 2018 tax cost recovery on this asset?
$500,000
$952,381
$1,000,000
$1,428,571 - ✔✔$1,428,571 This is somewhat tricky. It states that it is 10yr for book, but
it is only 7yr for tax. MACRS for 7yr is 14.29% so 10,000,000 x 14.29%= 1,429,000
✔✔A taxpayer performs legal services (fair market value of $50,000) to a corporation in
exchange for 10% of its stock (fair market value of $70,000).
What is the immediate tax consequence to the taxpayer?
Recognize $20,000 gain
Recognize $20,000 loss
Recognize $50,000 of ordinary income
Recognize $70,000 of ordinary income - ✔✔Recognize $70,000 of ordinary income
✔✔An individual transfers property with an adjusted basis of $32,000 and a $45,000
FMV in exchange for 80 shares of stock of a newly formed corporation. A second
individual is able to donate legal services in exchange for the remaining 20 shares of
corporation stock, valued at $15,000.
What is the control and gain for both Individuals?
The first individual controls 80% of the corporation and recognizes a gain of $13,000.
The second individual controls 20% of the corporation and realizes a $15,000 gain.
The first individual controls 80% of the corporation and is able to defer a gain of
$32,000. The second individual controls 20% of the corporation and is able to defer a
gain of $15,000.
The first individual controls 80% of the corporation and is able to defer the gain of
$13,000. The second individual controls 20% of the corporation and realizes $0 gain,
but does recognize $15,000 in ordinary income. - ✔✔The first individual controls 80% of
the corporation and is able to defer the gain of $13,000. The second individual controls
20% of the corporation and realizes $0 gain, but does recognize $15,000 in ordinary
income.
✔✔An individual owns land with an adjusted basis of $55,000 and a FMV of $85,000.
The land is paid in full with no liabilities outstanding. The individual needs to obtain
$15,000 in cash for personal use. The individual mortgages the land to obtain the cash.
,The individual wholly owns a corporation and subsequently transfers the land and the
mortgage to the corporation for additional stock.
What is the effect of the liability transfer from the individual to the corporation?
The individual will have a recognized gain of $0.
The individual will have a recognized gain of $15,000.
The individual will have a recognized gain of $30,000.
The individual will have a recognized gain of $55,000. - ✔✔The individual will have a
recognized gain of $15,000.
✔✔What allows an individual to transfer property to a corporation at formation without
recognizing gain?
Transferring the property in exchange for cash
Transferring the property in exchange for debt
Transferring the property in exchange for common stock
Transferring the property in exchange for nonqualified preferred stock - ✔✔Transferring
the property in exchange for common stock
✔✔In a non-liquidating reorganization, Company A transfers assets with a $200,000
adjusted basis to Company X in exchange for $400,000 of Company X stock and
$100,000 of boot property. Company A has five shareholders, each of whom owns a
20% share in the company. During the reorganization, none of the boot property is
distributed to shareholders.
What is the taxable gain that shareholders must recognize in this situation?
$0
$200,000
$300,000
$500,000 - ✔✔$0
✔✔Which type of assets must an acquiring corporation continue In a tax-deferred
reorganization?
The target corporation's historical business assets
The acquiring corporation's historical business assets
Both the target corporation's and acquiring corporation's business assets
Neither the target corporation's nor the acquiring corporation's business assets -
✔✔The target corporation's historical business assets
✔✔In a forward triangular merger, the acquisition subsidiary must acquire "substantially
all" of the target corporation's properties in the exchange.
What does the IRS interpret "substantially all" to mean?
, 90% of the fair market value of the target corporation's net properties and 70% of the
fair market value of the target corporation's gross properties
70% of the fair market value of the target corporation's net properties and 70% of the
fair market value of the target corporation's gross properties
70% of the fair market value of the target corporation's net properties and 90% of the
fair market value of the target corporation's gross properties
90% of the fair market value of the target corporation's net properties and 90% of the
fair market value of the target corporation's gross properties - ✔✔90% of the fair market
value of the target corporation's net properties and 70% of the fair market value of the
target corporation's gross properties
✔✔A corporation reports taxable income of $500,000 for the year, including the receipt
of $100,000 of dividends and a $70,000 dividends-received deduction.
What should be the corporation's current earnings and profit (E&P)?
$370,000
$400,000
$500,000
$570,000 - ✔✔$570,000
✔✔A corporation distributes property with a fair market value of $50,000, an adjusted
basis of $20,000 for taxable income purposes, and an adjusted basis of $15,000 for
earnings and profit (E&P) purposes to one of its shareholders in a non-liquidating
distribution. The property is encumbered by a $60,000 mortgage which the shareholder
assumes. The corporation pays tax at a 34% marginal tax rate.
What is the effect of the income tax paid on any gain on the corporation's E&P?
Increase of $10,000
Increase of $35,000
Decrease of $10,200
Decrease of $13,600 - ✔✔Decrease of $13,600
(20K) loss from adjusted basis
60K gain from debt relief
40K * .34 = $13,600 tax payable which decreases corporations E&P
✔✔Diego owns 70% of Endothon Corporation's stock, while Maria owns the remaining
30%. Diego and Maria have a tax basis in Endothon's stock of $32,000 and $12,000,
respectively.
Endothon has current earnings and profits (E&P) of $25,000 and no accumulated E&P.
At year-end, Endothon makes a $75,000 distribution: $56,250 to Diego and $18,750 to
Maria.
ANSWERS RATED A+
✔✔Business A is a calendar-year taxpayer and purchased office equipment for $10
million on March 1, 2018. The items were placed in service on May 1, 2018. The asset
has a 10-year recovery period for GAAP accounting purposes.
What is the amount of 2018 tax cost recovery on this asset?
$500,000
$952,381
$1,000,000
$1,428,571 - ✔✔$1,428,571 This is somewhat tricky. It states that it is 10yr for book, but
it is only 7yr for tax. MACRS for 7yr is 14.29% so 10,000,000 x 14.29%= 1,429,000
✔✔A taxpayer performs legal services (fair market value of $50,000) to a corporation in
exchange for 10% of its stock (fair market value of $70,000).
What is the immediate tax consequence to the taxpayer?
Recognize $20,000 gain
Recognize $20,000 loss
Recognize $50,000 of ordinary income
Recognize $70,000 of ordinary income - ✔✔Recognize $70,000 of ordinary income
✔✔An individual transfers property with an adjusted basis of $32,000 and a $45,000
FMV in exchange for 80 shares of stock of a newly formed corporation. A second
individual is able to donate legal services in exchange for the remaining 20 shares of
corporation stock, valued at $15,000.
What is the control and gain for both Individuals?
The first individual controls 80% of the corporation and recognizes a gain of $13,000.
The second individual controls 20% of the corporation and realizes a $15,000 gain.
The first individual controls 80% of the corporation and is able to defer a gain of
$32,000. The second individual controls 20% of the corporation and is able to defer a
gain of $15,000.
The first individual controls 80% of the corporation and is able to defer the gain of
$13,000. The second individual controls 20% of the corporation and realizes $0 gain,
but does recognize $15,000 in ordinary income. - ✔✔The first individual controls 80% of
the corporation and is able to defer the gain of $13,000. The second individual controls
20% of the corporation and realizes $0 gain, but does recognize $15,000 in ordinary
income.
✔✔An individual owns land with an adjusted basis of $55,000 and a FMV of $85,000.
The land is paid in full with no liabilities outstanding. The individual needs to obtain
$15,000 in cash for personal use. The individual mortgages the land to obtain the cash.
,The individual wholly owns a corporation and subsequently transfers the land and the
mortgage to the corporation for additional stock.
What is the effect of the liability transfer from the individual to the corporation?
The individual will have a recognized gain of $0.
The individual will have a recognized gain of $15,000.
The individual will have a recognized gain of $30,000.
The individual will have a recognized gain of $55,000. - ✔✔The individual will have a
recognized gain of $15,000.
✔✔What allows an individual to transfer property to a corporation at formation without
recognizing gain?
Transferring the property in exchange for cash
Transferring the property in exchange for debt
Transferring the property in exchange for common stock
Transferring the property in exchange for nonqualified preferred stock - ✔✔Transferring
the property in exchange for common stock
✔✔In a non-liquidating reorganization, Company A transfers assets with a $200,000
adjusted basis to Company X in exchange for $400,000 of Company X stock and
$100,000 of boot property. Company A has five shareholders, each of whom owns a
20% share in the company. During the reorganization, none of the boot property is
distributed to shareholders.
What is the taxable gain that shareholders must recognize in this situation?
$0
$200,000
$300,000
$500,000 - ✔✔$0
✔✔Which type of assets must an acquiring corporation continue In a tax-deferred
reorganization?
The target corporation's historical business assets
The acquiring corporation's historical business assets
Both the target corporation's and acquiring corporation's business assets
Neither the target corporation's nor the acquiring corporation's business assets -
✔✔The target corporation's historical business assets
✔✔In a forward triangular merger, the acquisition subsidiary must acquire "substantially
all" of the target corporation's properties in the exchange.
What does the IRS interpret "substantially all" to mean?
, 90% of the fair market value of the target corporation's net properties and 70% of the
fair market value of the target corporation's gross properties
70% of the fair market value of the target corporation's net properties and 70% of the
fair market value of the target corporation's gross properties
70% of the fair market value of the target corporation's net properties and 90% of the
fair market value of the target corporation's gross properties
90% of the fair market value of the target corporation's net properties and 90% of the
fair market value of the target corporation's gross properties - ✔✔90% of the fair market
value of the target corporation's net properties and 70% of the fair market value of the
target corporation's gross properties
✔✔A corporation reports taxable income of $500,000 for the year, including the receipt
of $100,000 of dividends and a $70,000 dividends-received deduction.
What should be the corporation's current earnings and profit (E&P)?
$370,000
$400,000
$500,000
$570,000 - ✔✔$570,000
✔✔A corporation distributes property with a fair market value of $50,000, an adjusted
basis of $20,000 for taxable income purposes, and an adjusted basis of $15,000 for
earnings and profit (E&P) purposes to one of its shareholders in a non-liquidating
distribution. The property is encumbered by a $60,000 mortgage which the shareholder
assumes. The corporation pays tax at a 34% marginal tax rate.
What is the effect of the income tax paid on any gain on the corporation's E&P?
Increase of $10,000
Increase of $35,000
Decrease of $10,200
Decrease of $13,600 - ✔✔Decrease of $13,600
(20K) loss from adjusted basis
60K gain from debt relief
40K * .34 = $13,600 tax payable which decreases corporations E&P
✔✔Diego owns 70% of Endothon Corporation's stock, while Maria owns the remaining
30%. Diego and Maria have a tax basis in Endothon's stock of $32,000 and $12,000,
respectively.
Endothon has current earnings and profits (E&P) of $25,000 and no accumulated E&P.
At year-end, Endothon makes a $75,000 distribution: $56,250 to Diego and $18,750 to
Maria.
