Broom Corporation Transfers Assets with an Adjusted Basis of $300,000

question 72

Multiple Choice

Broom Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $400,000 to Docker Corporation in exchange for $400,000 of Docker Corporation stock as part of a tax-free reorganization.The Docker stock had been purchased from its shareholders one year earlier for $350,000.How much gain do Broom and Docker Corporations recognize on the asset transfer?

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Definitions:

Contribution Margin

The amount by which a product's sales price exceeds its variable costs, used to cover fixed costs and generate profit.

Unit Contribution Margin

The difference between the selling price per unit and the variable cost per unit; an important metric in understanding per unit profitability and in break-even analysis.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Variable Cost Per Unit

The cost that varies with the level of output or activity and is typically assessed on a per-unit basis.