Exam 9: Nontaxable Exchanges

YCM Inc.exchanged business equipment (initial cost $114,800; accumulated depreciation $63,400)for like-kind equipment worth $110,000 and $10,000 cash.As a result,Rydell must recognize:

Three individuals transferred property to newly formed Triple Inc.in exchange for 1,000 shares of common stock.Mr.Albert transferred assets with a $50,000 tax basis in exchange for 820 shares,Mrs.Billig transferred assets with a $9,000 tax basis in exchange for 148 shares,and Mrs.Crisp transferred $4,000 cash for 32 shares.Based on the FMV of the transferred assets,each Triple share is worth $125.Which of the following is false?

Thieves stole computer equipment used by Ms.James in her small business.Ms.James' tax basis in the equipment was zero.One month after the theft,she received a $17,600 reimbursement from her casualty insurance company and used $14,850 to replace the computer equipment.She used the $2,750 remaining reimbursement to purchase a new desk for her office.Which of the following statements is false?

Itak Company transferred an old asset with a $44,300 adjusted tax basis in exchange for a new asset worth $48,000 and $3,000 cash.Which of the following statements is false?

Mr.and Mrs.Meredith own a sole proprietorship consisting of business assets with a $649,000 aggregated adjusted tax basis.According to an independent appraisal,the business is worth $2 million.The Merediths are planning to transfer the entire business to Molleri Inc.in exchange for 20,000 shares of Molleri stock.How much gain will the Merediths recognize on the exchange of business assets for stock and what basis will they take in the stock if: a.Molleri has 23,000 shares of outstanding stock immediately after the exchange? b.Molleri has 500,000 shares of outstanding stock immediately after the exchange?

Doppia Company transferred an old asset with a $68,750 adjusted tax basis in exchange for a new asset worth $90,000 and $10,000 cash.Which of the following statements is false?

On May 13,2016,a flood destroyed the building in which SDF Inc.manufactured its product.SDF's adjusted tax basis in the building was $984,000.On November 29,2017,SDF received a $1.2 million reimbursement from its casualty insurance company.In each of the following cases,compute SDF's recognized gain on this involuntary conversion and its initial basis in the replacement property. a.On June 2,2018,SDF completed construction of a replacement building for $1.3 million. b.On February 18,2020,SDF paid $1.3 million to purchase a replacement building. c.On August 30,2019,SDF paid $1.1 million to purchase a replacement building.

Mr.Jamail transferred business personalty (FMV $187,000; adjusted tax basis $29,900)to J&K Partnership in exchange for a partnership interest.Which of the following statements is true?

Tax neutrality for asset exchanges is the exception rather than the rule.

Tanner Inc.owns a fleet of passenger automobiles that it would like to dispose of in a nontaxable exchange.Which of the following would qualify as like-kind property?

Teco Inc.and MW Company exchanged like-kind production assets.Teco's asset had an $80,000 FMV and $53,900 adjusted tax basis,and MW's asset had an $87,500 FMV and a $28,100 adjusted tax basis.Teco paid $7,500 cash to MW as part of the exchange.Which of the following statements is false?

Nixon Inc.transferred Asset A to an unrelated party in exchange for Asset Z and $15,750 cash.Nixon's tax basis in Asset A was $400,000,and Asset Z had a $510,000 appraised FMV.Which of the following statements is true?

LiO Company transferred an old asset with a $13,600 adjusted tax basis in exchange for a new asset worth $11,000 and $1,500 cash.Which of the following statements is false?

A corporation's tax basis in property received in exchange for corporate stock depends on whether the exchange was taxable or nontaxable to the transferors of the property.

A taxpayer who pays boot in a nontaxable exchange includes the value of the boot in the basis of the qualifying property received.

Grantly Seafood is a calendar year taxpayer.In 2017,a hurricane destroyed three of Grantly's fishing boats with a $784,500 aggregate adjusted tax basis.On October 12,2017,Grantly received a $1 million reimbursement from its insurance company.On May 19,2018,Grantly purchased a new fishing boat for $750,000.Compute Grantly's recognized gain or loss on the involuntary conversion and its tax basis in the new boat.

Reiter Inc.exchanged an old forklift for new office furniture.This like-kind exchange is nontaxable.

Mrs.Volter exchanged residential real estate for a commercial office building.The residential real estate was subject to a $92,800 mortgage,which was assumed by the other party to the exchange.Mrs.Volter must treat the relief of the mortgage as $92,800 boot received.

Nontaxable exchanges typically cause a temporary difference between book income and taxable income.

Which of the following statements about nontaxable exchanges is true?