Exam 9: Nontaxable Exchanges

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?

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

Toffel Inc. exchanged investment land subject to a $240,000 mortgage for unencumbered farmland. If Toffel realized a $168,000 gain on the exchange, it must recognize the entire gain.

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?

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

Which of the following statements about nontaxable exchanges is true?

Loonis Inc. and Rhea Company formed LooNR Inc. by transferring business assets in exchange for 1,000 shares of LooNR common stock. Loonis transferred assets with a $820,000 FMV and a $444,000 adjusted tax basis and received 820 shares. Rhea transferred assets with a $180,000 FMV and a $75,000 adjusted tax basis and received 180 shares. Determine Loonis and Rhea's tax basis in their LooNR stock and LooNR's aggregate tax basis in the transferred assets.

Acme Inc. and Beamer Company exchanged like-kind production assets. Acme's asset had a $240,000 FMV and $117,300 adjusted tax basis, and Beamer's asset had a $225,000 FMV and a $168,200 adjusted tax basis. Beamer paid $15,000 cash to Acme as part of the exchange. Which of the following statements is true?

Johnson Inc. and C&K Company entered into an exchange of real property. Here is the information for the properties to be exchanged. Pursuant to the exchange, C&K paid $25,000 cash to Johnson and assumed the mortgage on the Johnson property. Compute C&K's gain recognized on the exchange and its tax basis in the property received from Johnson.

Mrs. Cooley exchanged 400 shares of stock for corporate bonds. If the stock and bonds were issued by the same corporation, they are like-kind properties, and the exchange is nontaxable.

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.

IPM Inc. and Zeta Company formed IPeta Inc. by transferring business assets in exchange for 1,000 shares of IPeta common stock. IPM transferred assets with a $675,000 FMV and a $283,000 adjusted tax basis and received 600 shares. Zeta transferred assets with a $450,000 FMV and a $98,000 adjusted tax basis and received 400 shares. Compute IPM and Zeta's realized and recognized gain on the exchange.

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.

Which of the following statements about like-kind exchanges is false?

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 OMG's gain recognized on the exchange and its tax basis in the property received from Babex.

Johnson Inc. and C&K Company entered into an exchange of real property. Here is the information for the properties to be exchanged. Pursuant to the exchange, C&K paid $25,000 cash to Johnson and assumed the mortgage on the Johnson property. Compute Johnson's gain recognized on the exchange and its tax basis in the property received from C&K.

Luce Company exchanged the copyright on a software application for a copyright on a different software application. Luce's gain on the exchange was nontaxable (because the copyrights were like-kind) but was included in financial statement income. Which of the following statements is false?

In March, a flood completely destroyed three delivery vans owned by Totle Inc. Totle's adjusted tax basis in the vans was $48,900. Totle received a $90,000 reimbursement from its property insurance company, and on September 8, it purchased one new delivery van for $70,000. Compute Totle's recognized gain on loss on the involuntary conversion and its tax basis in the new van.

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

Mrs. Brinkley transferred business property (FMV $340,200; adjusted tax basis $111,700) to M&W Inc. in exchange for a 36% interest in M&W Partnership. Determine Mrs. Brinkley's realized and recognized gain on the exchange and the tax basis in her partnership interest.