Exam 9: Nontaxable Exchanges

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.

Tauber Inc.and J&I Company exchanged like-kind assets.Tauber's asset had a $17,500 FMV and $3,000 adjusted tax basis,and J&I's asset had a $19,000 FMV and a $9,000 adjusted tax basis.Tauber paid $1,500 cash to J&I as part of the exchange.Which of the following statements is false?

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.

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.

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.

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?

Denali,Inc.exchanged realty with a $230,000 adjusted basis for like-kind realty with a $200,000 FMV and $5,000 cash.How much loss may Denali recognize?

A fire destroyed equipment used by BLP Inc.in its manufacturing business.BLP's adjusted tax basis in the equipment was $24,000.Three weeks after the fire,BLP paid $40,000 for replacement equipment.Which of the following statements is false?

Acme Inc.and Beamer Company exchanged like-kind 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?

In June,a fire completely destroyed office furniture owned by W&S Inc.W&S's adjusted tax basis in the furniture was $17,040.W&S received a $15,000 reimbursement from its property insurance company,and on August 8,it paid $16,000 to replace the furniture.Compute W&S's recognized gain on loss on the involuntary conversion and its tax basis in the new furniture.

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?

On January 21,2008,Andy purchased 350 shares of Baker common stock for $24,500.On November 13,2019,he sold the 350 shares for $7,250.On December 1,2019,Andy purchased 350 shares of Baker common stock for $8,000.What is Andy's basis in these shares?

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

In a like-kind exchange in which both properties are subject to a mortgage,both parties to the exchange are treated as receiving boot equal to the relief of their respective mortgage.

Bill contributed business realty ($375,000 FMV and $113,000 adjusted basis)to Zeta Inc.in exchange for Zeta common stock.Immediately after the exchange,Bill owned 53% of Zeta's outstanding stock.Compute gain recognized by Bill and by Zeta on this exchange.

Mr.Weller and the Olson Partnership entered into an exchange of investment real property.Mr.Weller's property was subject to a $428,000 mortgage,which Olson assumed.Olson's property was subject to a $235,000 mortgage,which Mr.Weller assumed.Which of the following statements 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.

Mr.Jamail transferred business personalty (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?

Teco Inc.and MW Company exchanged like-kind 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?

When unrelated parties agree to an exchange of noncash properties,the economic presumption is that the properties are of equal value.