Mercedes transferred a building (Adjusted Basis of $440,000 and Fair Market Value of $100,000) to Casey Corporation. In return, Mercedes received eighty percent (80%) of Casey Corporation's stock (Fair Market Value $65,000). There was an outstanding mortgage of $475,000 on the building which Casey Corporation assumed. Which of the following is correct?

Mercedes will have no Recognized Gain or Recognized Loss on the transfer.Mercedes will have a Recognized Loss on the transfer of $340,000.Casey Corporation will have a basis in the building transferred by Mercedes of $440,000.Mercedes will have a Recognized Gain on the transfer of $35,000