Question

X Corporation exchanged a warehouse located in New York for a warehouse located in New Jersey. The adjusted basis of the New York warehouse was $30,000. The fair market value of the New Jersey warehouse just prior to the exchange was $25,000. In addition to the warehouse, X Corporation also received $8,000 in cash.

54.     The amount realized by X Corporation is:

	a.	$8,000
	b.	$33,000
	c.	$25,000
	d.	Zero
	e.	None of the above

The gain realized by X Corporation is:

	a.	$5,000
	b.	Zero
	c.	$3,000
	d.	None of the above

The gain recognized by X Corporation on the exchange is:

	a.	$8,000
	b.	$3,000
	c.	Zero
	d.	None of the above

The basis for X Corporation in the property received, the warehouse in New Jersey, is:

	a.	$33,000
	b.	$30,000
	c.	$25,000
	d.	None of the above

Answer 1

The amount realized by X Corporation is $ 33000.

Reason: as warehouse amonting to $ 25000 and $ 8000 received in cash, so total amount realised is $ 33000.

The gain realized by X Corporation is $ 3000.

Reason: value of warehouse exchanged was $ 30000 and Toatal amount realised in cash $ 8000 and faire market value of warehouse $ 25000, total amount realised is $33000 less value of warehouse exchanged $30000. so net gain is $3000.

The gain recognized by X Corporation on the exchange is $ 3000.

4.The basis for X Corporation in the property received, the warehouse in New Jersey is $25000.

reason: As total realisation is faire value of warehouse received is $25000, so warehouse should be reconsed in asset side at $ 25000 and cash recieved amounting to $ 8000 should be debited to Cash account.

entry would be

warehouse (New Jersey) A/C------ Dr $25000

Cash A/C----------------------------------Dr $8000

       To Warehouse ( New york) ---------- Cr $30000

       To Profit and loss A/c-------------------Cr $ 30000

(being warehouse exchanged)