Lucas Transfers Investment Land to a Corporation as Part of a Section

question 27

Multiple Choice

Lucas transfers investment land to a corporation as part of a Section 351 transaction.The land has a fair market value of $75,000, an adjusted basis of $30,000, and is encumbered by a mortgage (from its original purchase five years ago by Lucas) of $40,000 that the corporation assumes.In exchange for the land, the corporation issues stock to Lucas worth $35,000.How much gain does Lucas recognize, what is Lucas's stock basis, and what is the basis of the land to the corporation, respectively?

• A)$0 gain; $30,000 stock basis; $30,000 land basis
• B)$10,000 gain; $0 stock basis; $40,000 land basis
• C)$10,000 gain; $10,000 stock basis; $30,000 land basis
• D)$0 gain; $0 stock basis; $30,000 land basis

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Definitions:

Cost Accounting Systems

Systems used by businesses to track, record, and analyze costs associated with their operations, with the aim of improving efficiency and profitability.

Accumulate Production

This term may not be standard; however, it could refer to the process of compiling or aggregating the total output of goods or services produced over a period.

Work in Process Inventory

Items currently in production but not yet completed; part of a manufacturing company's inventory.

Finished Goods Inventory

The total value of all the finished products that are ready for sale but have not yet been sold by the company.