Question

In: Accounting

Robert and Frank entered into an agreement where Robert exchanges his office building for Frank’s farmhouse.  The...

  1. Robert and Frank entered into an agreement where Robert exchanges his office building for Frank’s farmhouse.  The office building has a FMV of $480,000.  Robert purchased the building in 2004 for $275,000 and has taken $65,000 of depreciation.  Also, Robert has a mortgage on the building of $80,000, which Frank has agreed to assume. In exchange for the Robert’s building Frank will transfer his farmhouse (FMV $350,000 / adjusted basis $225,000) plus equipment with a FMV of $50,000 and an A/B of $85,000.

    What is the amount realized by Robert on the exchange of his building?

    a.

    $480,000
    b.

    $430,000
    c.

    $400,000
    d.

    $350,000
    e.

    None of the above.

  1. What is Robert’s realized gain?

    a.

    $0
    b.

    $480,000
    c.

    $270,000
    d.

    $205,000
    e.

    None of the above

  1. What is Robert’s recognized gain?

    a.

    $0
    b.

    $270,000
    c.

    $50,000
    d.

    $130,000
    e.

    None of the above.

  1. What is Robert’s adjusted basis in the farmhouse after the exchange?

    a.

    $340,000
    b.

    $210,000
    c.

    $275,000
    d.

    $370,000
    e.

    None of the above.

  1. What is Frank basis in the building after the exchange?

    a.

    $355,000
    b.

    $225,000
    c.

    $275,000
    d.

    $305,000
    e.

    None of the above.

Solutions

Expert Solution

1. What is the amount realized by Robert on the exchange of his building?

Robert will get:

Farmhouse FMV $ 350,000

Equipment FMV $ 50,000

Mortagage Transfer $ 80,000

Total $ 480,000

So Option a is correct.

2. What is Robert’s realized gain?

Robert will get $ 480,000 as per above working

Cost of Building $210,000 (Original Cost less depreciation), ($ 275,000 less $ 65,000)

So realised gain is $270,000 (Sale proceeds less cost), ($ 480,000 less $ 210,000)

So option b is correct.

3. What is Robert’s recognized gain?

Recognised gain is Zero as he gets Farm house & equipment against Transfer of building along with loan. So Currently recognized gain is Zero.

So Option a is correct.

4. What is Robert’s adjusted basis in the farmhouse after the exchange?

Adjusted Basis value of Farmhouse: (Value in $)

Original cost of Building 275,000
Less; Depreciation 65,000
Less: Outstanding Loan 80,000
Less: FMV of Equipment 50,000
Balance is Adjusted Value of Farmhouse 80,000

So Option e is correct

5. What is Frank basis in the building after the exchange?

Adjusted value of Farmhouse is under (Value in $)

Adjusted value of Farm House 225,000
Add: FMV value of Equipment 50,000
Add: Mortgage Loan on Building 80,000
Balance is Adjusted Value of Building 355,000

So Option a is correct.

ekkarill92 answered 1 year ago
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