Martin Operates a Law Practice as a Sole Proprietorship Using

Multiple Choice

Martin operates a law practice as a sole proprietorship using the cash method of accounting.Martin incorporates the law practice and transfers the following items to a new,solely owned corporation. $$\begin{array} { | l | r | r | } \hline & \text { Adjusted Basis } & \text { FMV } \\\hline \text { Cash } & & \\\text { Equipment } & \$ 10,000 & \$ 10,000 \\\text { Accounts receivable } & 80,000 & 100,000 \\\text { Accounts payable (deductible } & 0 & 120,000 \\\text { expenses) } & 0 & 60,000 \\\text { Note payable (on equipment) } & 50,000 & 50,000 \\\hline\end{array}$$ Martin must recognize a gain of ________ and has a stock basis of ________:

A) $0; $30,000
B) $0; $40,000
C) $20,000; $30,000
D) $20,000; $40,000