Exam 9: Nontaxable Exchanges

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. 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.

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.

Mr. Jamail transferred business personality (FMV $187,000; adjusted tax basis $29,900) to J&K Inc. in exchange for J&K common stock. Which of the following statements is true?

Kimbo Inc. exchanged an old asset ($180,000 FMV and $145,000 adjusted basis) plus $10,000 cash for a new asset with a $190,000 FMV. What is Kimbo's basis in the new asset if the transaction qualifies as a like-kind exchange?

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?

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

Tibco Inc. exchanged an equity interest in ABM Partnership for an equity interest in Jolla Partnership. This exchange is taxable.

Mr. Slake sold 1,580 shares of publicly traded DDL stock (tax basis $49,240) for $40,000 cash on February 13. He paid $43,000 cash to purchase 1,600 DDL shares on March 2. Compute Mr. Slake's loss recognized on the February 13 sale and determine his tax basis in the 1,600 shares.

Berly Company transferred an old asset with a $12,300 adjusted tax basis in exchange for a new asset worth $20,000. Which of the following statements is false?

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. Which of the following statements is true?

Which of the following statements about nontaxable exchanges is true?

A fire destroyed furniture and fixtures used in Jock's business. Jock's adjusted basis in the furniture and fixtures was $81,300. Jock received a $100,000 reimbursement from his insurance company and immediately spent $93,000 to purchase new furniture and fixtures. How much gain or loss must Jock recognize on this involuntary conversion?

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?

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

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. Compute M&W's recognized gain on its exchange of stock for property and determine M&W's tax basis in the property received from Mrs. Brinkley.

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

Which of the following statements about the inclusion of boot in a nontaxable exchange 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.

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.