Leah Transfers Equipment (Basis of $400,000 and Fair Market Value

question 101

Multiple Choice

Leah transfers equipment (basis of $400,000 and fair market value of $500,000) for additional stock in Crow Corporation. After the transfer, Leah owns 80% of Crow's stock. Associated with the equipment is § 1245 depreciation recapture potential of $70,000. As a result of the transfer:

• A) Leah recognizes ordinary income of $70,000.
• B) The § 1245 depreciation recapture potential carries over to Crow Corporation.
• C) The § 1245 depreciation recapture potential disappears.
• D) Leah recognizes ordinary income of $70,000 and § 1231 gain of $30,000.
• E) None of the above.

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Definitions:

Visual Stimuli

External cues that are perceived by the visual system, shaping our understanding of the environment.

Qualitative Improvement

Refers to enhancements in the quality or nature of something rather than its quantity.

Adolescence

A developmental stage that marks the transition from childhood to adulthood, characterized by physical, psychological, and social changes.

Postconventional Level

According to Kohlberg, a period during which moral judgments are derived from moral principles, and people look to themselves to set moral standards.