Ashley transferred a building (adjusted basis of $70,000 and fair market value of $180,000) to Lavender Corporation.In return, Ashley received 80% of Lavender Corporation's stock (worth $68,000) and an automobile (fair market value of $32,000).In addition, there is an outstanding mortgage of $80,000, held for 5 years, on the building that Lavender Corporation assumed.With respect to this trans?action:

Question

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To determine the amount of recognized gain, we need to compare the fair market value (FMV) of what Ashley received with the adjusted basis of what she transferred:

FMV of Lavender Corporation's stock: $68,000
FMV of automobile: $32,000
FMV of assumed mortgage: $80,000
Total FMV of what Ashley received: $180,000

Adjusted basis of the building: $70,000

Since the FMV of what Ashley received ($180,000) is greater than the adjusted basis of what she transferred ($70,000), she has a recognized gain equal to the difference of $110,000 ($180,000 - $70,000).

Therefore, the correct answer is C. Ashley's recognized gain is $42,000 (80% of the recognized gain of $110,000).

The basis of the building to Lavender Corporation is also $70,000, as it takes on the adjusted basis of the property in a non-taxable exchange.

Ashley Transferred a Building (Adjusted Basis of $70,000 and Fair