Capital Contribution

### Does a shareholder receive additional stock when making a capital contribution? - [ ] Yes, always. - [ ] Sometimes, depending on the corporation's decision. - [x] No, a shareholder does not receive additional stock. - [ ] Only if the contribution is above a certain threshold. > **Explanation:** When a shareholder makes a capital contribution, they do not receive additional stock in return. This contribution increases the basis of the shareholder’s existing stock. ### What happens to the corporation's basis in the property contributed by a shareholder? - [ ] It is reset to the current market value. - [x] It is carried over from the shareholder's basis. - [ ] It is halved. - [ ] It is subject to depreciation reconsideration. > **Explanation:** The corporation's basis in the property contributed by a shareholder is the carryover basis from the shareholder's adjusted basis in that property. ### Can capital contributions be made in forms other than cash? - [x] Yes - [ ] No > **Explanation:** Capital contributions can be made through the provision of various assets, including real property, intellectual property, or other tangible and intangible assets, not just cash. ### Does a capital contribution affect the shareholder's basis in their existing stock? - [x] Yes, it increases the basis. - [ ] No, it does not change the basis. - [ ] It decreases the basis. - [ ] It neutralizes the basis. > **Explanation:** A capital contribution increases the basis of the shareholder’s existing stock by the amount of the contribution. ### When a shareholder makes a capital contribution of $100,000 in real property with an adjusted basis of $60,000, what is the corporation's basis in the property? - [ ] $100,000 - [ ] Market value at the time of contribution - [x] $60,000 - [ ] Zero > **Explanation:** The corporation takes over the shareholder's adjusted basis in the contributed property, which is $60,000 in this scenario. ### What term describes the total amount of cash and other assets received by a corporation from its shareholders in exchange for stock? - [x] Paid-in Capital - [ ] Retained Earnings - [ ] Loan Amount - [ ] Shareholder Equity > **Explanation:** Paid-in Capital refers to the total cash and assets received from shareholders in exchange for stock. ### If a corporation receives a capital contribution, does it face any immediate tax consequences? - [x] No immediate tax consequences typically arise. - [ ] Yes, an immediate tax liability is created for the corporation. - [ ] The shareholder faces immediate tax consequences. - [ ] Delayed tax consequences generally occur. > **Explanation:** Normally, capital contributions made by shareholders do not result in immediate tax consequences for the corporation. ### How does a capital contribution impact the corporation's balance sheet? - [x] It increases equity without increasing liabilities. - [ ] It increases both equity and liabilities. - [ ] It reduces liabilities only. - [ ] It primarily affects assets with minor equity adjustments. > **Explanation:** A capital contribution increases the corporation's equity without adding to its liabilities, reflecting an infusion of resources into the company. ### What is the primary reason for a shareholder to make a capital contribution without receiving additional stock? - [ ] To increase personal income immediately. - [x] To strengthen the financial position of the corporation and improve its equity. - [ ] To lower personal tax liabilities. - [ ] To diversify the shareholder's portfolio. > **Explanation:** The primary motive is typically to strengthen the corporation's financial position, thereby increasing equity and supporting future growth and operational needs. ### What is the term for the residual interest in the assets of the corporation after deducting liabilities? - [x] Shareholder Equity - [ ] Retained Earnings - [ ] Asset Base - [ ] Capital Account > **Explanation:** Shareholder Equity refers to the residual interest in the assets of the corporation after deducting all liabilities.