Allen Transfers Marketable Securities with an Adjusted Basis of $120,000

question 81

True/False

Allen transfers marketable securities with an adjusted basis of $120,000, fair market value of $300,000, for 85% of the stock of Heron Corporation. In addition, he receives cash of $40,000. Allen recognizes a capital gain of $40,000 on the transfer.

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Definitions:

Post-closing Trial Balance

A financial statement prepared after all adjusting and closing entries are made, ensuring the total debits equal total credits.

Ledger Accounts

Individual financial records within the general ledger, detailing transactions related to a specific account category.

Income Summary

An account in the accounting ledger that is used to summarize the revenues and expenses for a period, facilitating the transfer of net income or loss to retained earnings.

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances in temporary accounts to permanent accounts, thereby preparing the company's books for the next period.