Adam transfers inventory 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 $30,000.Adam recognizes a capital gain of $30,000 on the transfer.

Question

Quizplus · Accepted Answer

Adam recognizes a gain to the extent of the cash received, but since the inventory is not a capital asset, the gain is ordinary, not a capital gain.

Adam Transfers Inventory with an Adjusted Basis of $120,000,fair Market