Exam 9: Nontaxable Exchanges

Mrs.Brinkley transferred business property (FMV $340,200; adjusted tax basis $111,700)to M&W Inc.in exchange for 4,200 shares of M&W stock.Immediately after the exchange,M&W had 7,800 shares of outstanding stock.Determine Mrs.Brinkley's realized and recognized gain on the exchange and the tax basis in her 4,200 M&W shares.

Sissoon Inc.exchanged a business asset for an investment asset.Both assets had a $620,000 appraised FMV.Sissoon's book basis in the business asset was $518,900,and its tax basis was $443,400. a.Compute Sissoon's book and tax gain if the business asset and investment asset were like-kind properties for tax purposes. b.Determine Sissoon's book and tax basis of the investment asset acquired in the nontaxable exchange.properties for tax purposes. c.Compute Sissoon's book and tax gain if the business asset and investment asset were not like-kind properties for tax purposes. d.Determine Sissoon's book and tax basis of the investment asset acquired in the taxable exchange.

Five years ago,Q&J Inc.transferred land with a $345,000 book and tax basis for a different parcel of land worth $472,000.Q&J included its $127,000 realized gain in book income,but the exchange was nontaxable.This year,Q&J sold the parcel of land received in the exchange for $533,000 cash.Compute Q&J's book and tax gain on sale.

Hank exchanged an old asset with a $12,000 adjusted basis for a new asset with a $32,000 FMV plus $2,000 cash.Compute Hank's realized and recognized gain if the new and old assets are like-kind properties.

Which of the following statements about the wash sale rule is false?

Rydell Company exchanged business equipment (initial cost $55,250; accumulated depreciation $25,450)for like-kind equipment worth $44,000 and $2,000 cash.As a result,Rydell must recognize:

Which of the following statements about the transfer of debt in a like-kind exchange is false?

Gem Company's manufacturing facility was destroyed by a flood.The facility's adjusted basis was $665,000,and Gem received an $850,000 insurance reimbursement.Within 18 months of the flood,Gem rebuilt the facility at a total cost of $975,000.Which is Gem's basis in the new facility?

Oxono Company realized a $74,900 gain on the exchange of one asset for another asset (no cash was included in the exchange).The assets were like-kind properties.Oxono reported the gain as revenue on its financial statements.Which of the following is true?

A flood destroyed a business asset owned by Boochi Company.Boochi's adjusted tax basis in the asset was $87,100.Six months after the flood,Boochi used its $100,000 insurance settlement to replace the asset.Boochi can recognize a $12,900 gain or it can elect to defer gain recognition.

V&P Company exchanged unencumbered investment land for farmland subject to a $200,000 mortgage.If V&P realized a $168,000 gain on the exchange,it must recognize the entire gain.

Babex Inc.and OMG Company entered into an exchange of real property.Here is the information for the properties to be exchanged. Pursuant to the exchange,OMG assumed the mortgage on the Babex property.Compute Babex's gain recognized on the exchange and its tax basis in the property received from OMG.

A taxpayer who receives or pays boot in a nontaxable exchange must recognize gain to the extent of the FMV of the boot.

When unrelated parties agree to an exchange of noncash properties,the economic presumption is that the properties have the same adjusted book basis.

The wash sale rule can result in the nonrecognition of both gains and losses.

Gain realized on a property exchange that is not recognized is actually deferred rather than nontaxable.

Tarletto Inc.'s current year income statement includes a $229,000 gain realized on the exchange of an old business asset for a new business asset.If the exchange is nontaxable,Tarletto's book basis in the new asset is $229,000 greater than its tax basis.

Carman wishes to exchange 10 acres of Iowa farm land in a like-kind exchange.Which of the following properties will qualify for like-kind exchange treatment?

A taxpayer who exchanges property for an interest in a partnership never recognizes gain or loss on the exchange.

Mr.Lexon owns investment property with a $719,000 basis.If the property is worth only $500,000,Mr.Lexon would prefer a taxable disposition of the property over a like-kind exchange.