Yong Contributes a Machine Having an Adjusted Basis of $20,000

question 95

Multiple Choice

Yong contributes a machine having an adjusted basis of $20,000 and an FMV of $25,000 for a 10% partnership interest. Yong had taken $10,000 of depreciation prior to the contribution. The partnership has no liabilities. As a result of the contribution, Yong must recognize

• A) $10,000 ordinary income.
• B) a $5,000 Sec. 1245 gain.
• C) a $5,000 capital gain.
• D) no gain or loss.

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Definitions:

Exercise Value

Equal to the current price of the stock (underlying the option) less the strike price of the option.

Call Options

Financial contracts that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period.

Strike Price

The price stated in the option contract at which the security can be bought (or sold). Also called the exercise price.

Premium

An amount paid in addition to the standard or nominal cost, often for insurance, bonds, or superior products or services.