Martin Operates a Law Practice as a Sole Proprietorship Using

question 43

Multiple Choice

Martin operates a law practice as a sole proprietorship using the cash method of accounting. Martin incorporates the law practice and transfers the following items to a new, solely owned corporation. $$\begin{array} { | l | c | r | } \hline & \text { Adjusted Basis } & \text { FMV } \\\hline \text { Cash } & \$ 10,000 & \$ 10,000 \\\text { Equipment } & 80,000 & 100,000 \\\text { Accounts receivable } & 0 & 120,000 \\\text { Accounts payable (deductible expenses) } & 0 & 60,000 \\\text { Note payable (on equipment) } & 50,000 & 50,000 \\\hline\end{array}$$ Martin must recognize a gain of ________ and has a stock basis of ________:

• A) $0; $30,000
• B) $0; $40,000
• C) $20,000; $30,000
• D) $20,000; $40,000

---

Definitions:

Third Person

A point of view in communication or literature where the narrator or presenter refers to all participants using third-person pronouns like he, she, it, or they.

Second Person

A point of view in literature where the narrator addresses the reader directly using 'you.'

Business Writing

The professional communication of ideas, instructions, or concepts in a clear, concise, and appropriate manner for a business context.

Spell Checker

A software tool that identifies and corrects spelling mistakes in text.