Henry Transfers Property with an Adjusted Basis of $90,000 and an FMV

question 35

Multiple Choice

Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly-formed corporation in a Sec. 351 exchange. Henry receives stock with an FMV of $80,000 and a short-term note with a $20,000 FMV. Henry's recognized gain is

• A)$0.
• B)$5,000.
• C)$10,000.
• D)$20,000.

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Definitions:

Sunk Costs

Costs that have already been incurred and cannot be recovered, which should not influence future business decisions since they cannot be changed.

Split-off

A point in a production process where multiple products are generated from a single input, each having its own identifiable market.

Joint Production Costs

Costs incurred during the process of producing multiple products simultaneously where the costs cannot be attributed to individual products easily.

Relative Sales Value Method

A method used to allocate joint costs based on the relative sales value of the products produced from the same process or operation.