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:

American Call Option

A type of options contract that gives the holder the right, but not the obligation, to buy an asset at a set price at any time before the expiration.

Exercise Price

The cost at which the possessor of an option is allowed to purchase (in the case of a call option) or dispose of (in the case of a put option) the asset underneath.

Netscape Stock

Refers to the equity of Netscape Communications Corporation, a pivotal company in the early internet era known for its web browser.

Cross-Hedging

A risk management strategy that involves hedging a position in one asset by taking a position in another asset with similar price movements.