Filbert Oil Company owns 100% of the working interest in an unproved lease that it acquired for $100,000. The property is individually significant, and individual impairment of $20,000 had been assessed. Filbert conveys the working interest to another party and retains a 1/7 ORI in return for $30,000 cash. Assume the companies use the successful efforts method.

a. No gain or loss is recognized. The entire allowance balance is written off and the difference between the net book value and the cash received is attributed to the unproved ORI that was retained.

b. The net book value is apportioned between the WI that is sold and the ORI retained on the basis of their relative fair market values. If the net book value attributed to the WI sold is greater than $30,000, a loss is recognized. If the net book value attributed to the WI sold is less than $30,000, a gain is recognized.

c. The net book value is apportioned between the WI that is sold and the ORI retained on the basis of their relative fair market values. If the net book value attributed to the WI sold is greater than $30,000, a gain is recognized. If the net book value attributed to the WI sold is less than $30,000, a loss is recognized.

d. Gain recognition is not permitted but loss recognition is okay. The entire allowance balance is written off, and the difference between the net book value and the cash received is attributed to the unproved ORI that was retained.

e. None of these applies.